Terms of trade (ToT) in economics refer to the ratio at which one country's goods are exchanged for those of another country. It essentially measures the value of one country's products in relation to another's, indicating how much of one good must be traded to obtain a certain amount of another good.
The terms of trade can be expressed as a ratio or an index, reflecting the relative prices of a country's exports to its imports. A favorable change in terms of trade means that a country can buy more imports for a given quantity of exports, while an unfavorable change means that it must export more to purchase its imports.
Terms of trade is important for understanding a country’s economic stability and competitiveness in the global market, as well as its balance of trade and overall economic health. Influencing factors can include changes in demand and supply, fluctuations in foreign exchange rates, and macroeconomic policies.