Terms of Trade

Terms of Trade actually used to help determine how healthy a country’s economy is, can lead analysts to draw the wrong conclusions. It can also have a beneficial effect on domestic cost-push inflation as an improvement indicates falling import prices relative to export prices. It may be influenced by the exchange rate because a rise in the value of a country’s currency lowers the domestic prices of its imports but may not directly affect the prices of the commodities it exports. It’s measurements are often recorded in an index so that economic monitoring can be performed.