Terms of trade may be define as the

Terms of trade may be defined as the rate at which one country's exports exchange for imports from another country. In other words, terms of trade represent the ratio of export prices to import prices. A country with favorable terms of trade is able to sell its exports at a higher price than it pays for its imports. This means that the country is able to obtain more imports for each unit of its exports. The terms of trade are important because they affect a country's ability to pay for its imports and to finance its economic development. If a country's terms of trade are unfavorable, it will have to export more goods to pay for the same amount of imports. This can be a drag on the country's economic growth and development. Therefore, a country's terms of trade are an important economic indicator that can help policymakers understand the health of the country's economy and make decisions about trade policy.