Index of foreign trade
Also called: Foreign trade index · Topic: Inflation and Index Numbers: CPI, WPI, IIP and the Deflator · NCERT: Class 11, Ch 7 "Index Numbers"
Meaning
The index of foreign trade is a set of index numbers that track a country's exports and imports over time. It has two parts. Unit-value indices measure changes in the average price per unit of exports and imports. Quantity indices measure changes in the physical volume traded. The unit-value indices are used to work out the terms of trade, which tell you how many imports a country can buy with a given amount of exports: Terms of trade = (export unit-value index ÷ import unit-value index) × 100.
Example
India imports over 85% of its crude oil. When the price of crude rises, India's import unit-value index goes up. If export prices stay the same, the terms of trade fall, so India must export more to pay for the same imports.
Don't confuse with
- Balance of trade: this is the rupee gap between the value of exports and the value of imports. The index of foreign trade measures changes in prices and volumes against a base year.