Terms of Trade - TOT

AAA

DEFINITION of 'Terms of Trade - TOT'

The value of a country's exports relative to that of its imports. It is calculated by dividing the value of exports by the value of imports, then multiplying the result by 100. If a country's terms of trade (TOT) is less than 100%, there is more capital going out (to buy imports) than there is coming in. A result greater than 100% means the country is accumulating capital (more money is coming in from exports).

BREAKING DOWN 'Terms of Trade - TOT'

Using the terms of trade to determine the health of a country's economy can draw the wrong conclusions. It is important to know why exports increase relative to imports, especially since the terms of trade are directly impacted by changes in export and import prices. Terms of trade measurement is often recorded in an index for economic monitoring.

RELATED TERMS
  1. Absolute Advantage

    The ability of a country, individual, company or region to produce ...
  2. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it ...
  3. Balance Of Trade - BOT

    The difference between a country's imports and its exports. Balance ...
  4. Comparative Advantage

    The ability of a firm or individual to produce goods and/or services ...
  5. Export

    A function of international trade whereby goods produced in one ...
  6. Import

    A good or service brought into one country from another. Along ...
Related Articles
  1. Personal Finance

    What Is International Trade?

    Everyone's talking about globalization, so we explain what is it and why some oppose it.
  2. Bonds & Fixed Income

    6 Factors That Influence Exchange Rates

    Find out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  3. Trading Strategies

    Cashing In On A Commodities Boom

    They're hard to predict, but commodities cycles provide valuable information for traders.
  4. Economics

    A Look at Greece’s Messy Fiscal Policy

    Investigate the muddy fiscal policy, tax problems, and inability to institute austerity that created the Greek crises in 2010 and 2015.
  5. Markets

    The Vodka Industry Keeps Growing, But Why?

    Understand what the vodka industry is and where it performs best. Learn about the growth of the industry and three reason why it continues to grow.
  6. Fundamental Analysis

    Is India the Next Emerging Markets Superstar?

    With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP.
  7. Term

    What is the Macro Environment?

    The macro environment is the conditions existing in an economy as a whole, rather than in a single sector or region.
  8. Economics

    Puerto Rico Will Soon Become America's Greece

    Explore the similarities that exist between Puerto Rico in relation to the United States and Greece in relation to the European Union.
  9. Taxes

    What's Wrong with the American Tax System

    American's are highly taxed and we still run a deficit. We explain why.
  10. Economics

    Understanding the Bank Rate

    Bank rate is a term describing the interest rate a country’s central bank charges its domestic banks on loans it makes to them.
RELATED FAQS
  1. When has the United States run its largest trade deficits?

    In macroeconomics, balance of trade is one of the leading economic metrics that determines the trading relationship of a ... Read Full Answer >>
  2. Which is more important to a nation's economy, the balance of trade or the balance ...

    There is no question the composition of a country's balance of payments is more important than its balance of trade. This ... Read Full Answer >>
  3. What is the difference between cost and freight (CFR) and cost, insurance and freight ...

    The difference between cost and freight (CFR) and cost, insurance and freight (CIF) is essentially the requirement under ... Read Full Answer >>
  4. What is the difference between Cost and Freight (CFR) and Free on Board (FOB)?

    The difference between cost and freight (CFR) and free on board (FOB) lies in who has responsibility for various shipping ... Read Full Answer >>
  5. What are the ethical arguments against government subsidies to companies like Tesla?

    The ethical argument behind government subsidies is that they should be put into place to help industries that will, in turn, ... Read Full Answer >>
  6. How can tariffs cause inefficiencies in domestic industries?

    Any government regulation naturally creates inefficiencies in a pure supply and demand marketplace. When it comes to the ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  2. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  3. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  4. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  5. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
  6. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered. Until the call ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!