Microeconomic Indicator in FOREX:
Global Terrorism Index
What is the Terrorism Index?
The Institute for Economics and Peace publishes a report annually with an inclusive summary of the trends and events with respect to terrorism, all over the world. This report is known as Global Terrorism Index where every country is given a specific score and ranked accordingly, by considering the acts of terrorism that happened & the impact it had on the country’s economy in a year. The data on which this index calculation is based on the Global Terrorism Database which is maintained by National Consortium for the Study of Terrorism and Responses to Terrorism. This database has records of over 150 thousand cases of terrorism. Terrorism index covers the terrorist activities in over 163 countries globally, which is almost 99.7% of the entire population.
The purpose of this index is to understand the patterns and trends of terrorist activities in individual countries and suggest any policy changes to their governments if required, to minimize these acts. Institute of Economics & Peace considers four key indicators to calculate the Terrorism Index. They are, the total number of terrorist incidents occurred in a given year, the total number of fatalities from these incidents in a given year, the total number of injuries caused by these incidents in a given year and the total property loss from these incidents in a given year. These indicators are given certain weights and then combined to arrive at the final index numbers. The highest weight is given to the fatality followed by the property damage.
What does the Terrorism Index measure?
The Terrorism Index measures the patterns and trends of activities pertaining to terrorism in each of the 163 countries. According to the Global Terrorism Index report 2018, Iraq, Afghanistan & Nigeria are the countries which are affected by terrorism to the maximum extent. According to GTI, there is a decrease in the total number of deaths due to terrorism compared to previous years and this is the trend from the past 4 years, year-on-year. As per records, 2014 is the deadliest year with 32,765 deaths and 2015 is the second deadliest with 3,389 fewer deaths than 2014.
Reliable sources of information on ‘Terrorism Index’ for Major currencies:
There is a lot of information with respect to the Terrorism Index of different countries in the sources provided below. You can familiarize yourself with the Terrorism Index of the respective country along with the historical data related to that. You can also compare the Terrorism Indices of one country to the other using this web portal. The graphical representation of the historical data will give you a clear understanding of how this data changed over time. You also get to change the graphical representations according to your preference. A ton of more information related to the latest news in that regard is provided to give you a better understanding.
GBP (Sterling) – https://tradingeconomics.com/united-kingdom/terrorism-index
What do traders care about the Terrorism Index and its impact on the currency?
Markets are often unpredictable for unexpected news. Terror attacks are one of such events. As a result, an affected marketplace may experience several direct and indirect consequences. The act of terror creates a unique degree of fear and economic uncertainty. While most of these attacks impact specific geography or country, some will have minor effects on the international financial system. However, the volatility of the markets depends upon the impact that the event is going to have on the psychology & sentiments of the traders and investors.
Short-term volatility will, of course, be there in the Forex market right after the occurrence of terror attacks. Sudden pricing fluctuations may occur due to increased market participation. This is because people would want to shift their investments which are going to get affected due to these attacks. It is a common practice for most of the traders and investors to shift their focus towards safer asset classes from volatile currencies. This may suddenly strength the value of some currencies and weakness others.
Frequency of the release
The Global Terrorism Index of all the countries is published annually by the Institute for Economics and Peace. The weightings are given to each of the indicator and index numbers are calculated on a yearly basis. The final GTI report is published every year in the month of November.
The Bottom Line
Any act of terror creates uncertainty and in general, markets do not respond positively to uncertainty. This results in the currency of a country getting volatile which results in the holders choosing to transfer assets to more stable places or exit the market. Traders use specific tools to mitigate risks and safeguard their investments in case of market volatilities due to unexpected events like terror attacks. The ability to suspend trade by using a ‘circuit breaker’ has been a prominent tool which is prevailing in most of the markets in case of terror attacks, is one of the best examples.
These unexpected situations that arise due to some extremists are inevitable and unfortunately cannot be completely eradicated. The risk and influence of terrorism upon the international markets is high to an extent. As these kinds of attacks are unpredictable, traders must respect the impact it has on their investments and has a concrete plan to deal with at most care when the situation arises.