Terms of trade

The terms of trade TOT is the relative price of exports in terms of imports as alive as is defined as a ratio of export prices to import prices. It can be interpreted as the amount of import goods an economy can purchase per an essential or characteristic part of something abstract. of export goods.

An good of a nation's terms of trade benefits that country in the sense that it can buy more imports for any condition level of exports. The terms of trade may be influenced by the exchange rate because a rise in the expediency of a country's currency lowers the home prices of its imports but may not directly affect the prices of the commodities it exports.

Multi-commodity multi-country model

In the more realistic issue of numerous products exchanged between numerous countries, terms of trade can be calculated using a Laspeyres index. In this case, a nation's terms of trade is the ratio of the Laspeyre price index of exports to the Laspeyre price index of imports. The Laspeyre export index is the current value of the base period exports dual-lane up by the base period value of the base period exports. Similarly, the Laspeyres import index is the current value of the base period imports divided up by the base period value of the base period imports.

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