Terms of Trade

Terms of Trade

Not the contractual conditions of sale between a buyer and a seller, but the quantity of foreign goods andservices (imports) that a country can purchase from the proceeds of the sale of its goods and services (exports) of a given quantity. It is a measure of a country's trading clout and is expressed as the ratio of anindex of export prices to an index of import prices. Terms of trade of a country improve when the prices of its exports rise in comparison with the prices of its imports, vice versa.