In economics, terms of trade refer to the ratio at which a country can trade its exports for imports from another country. It indicates the relative price of a country's exports in terms of its imports. Terms of trade are important because they determine the purchasing power of a country's exports and the cost of its imports. A favorable terms of trade means that a country can import a larger amount of goods and services for a given amount of exports, while an unfavorable terms of trade means that the country has to export more goods and services to import the same amount.
