Terms of trade

Question 1

What is terms of trade

Answer 1

A measure of the exchange of one product for another when two countries trade

Question 2

What is the formula for terms of trade

Answer 2

(Index of export prices/index of import prices)x100

Question 3

What are the 4 factors that affect terms of trade

Answer 3

-Raw material prices
-Inflation rate
-Exchange rates
-Tariffs
-Exports/imports

Question 4

How do you achieve a favourable and unfavourable terms of trade

Answer 4

Favourable:
-Increase in export prices OR decrease in import prices

Unfavourable:
-Increase import prices OR decrease in export prices