Question 26
International TradeWhich of the following statements is true about terms of trade?
- A.Terms of trade shows the difference between the value of exports and imports
- B.Terms of trade indicates the rate at which exports exchange for imports
- C.It is ratio of the price index of exports to imports
- D.It is usually expressed as a percentage
- E.A rise in the price of exports relative to imports is an improvement.
Show the answer and explanation
Answer: C (It is ratio of the price index of exports to imports)
Explanation
Terms of trade = (index of export prices ÷ index of import prices) × 100, i.e. a ratio of export to import price indices.