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Trade Weighted Index and Terms of Trade (1 Viewer)
- Thread starter BunJai
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well basically, the terms of trade is a relationship between the price of a country's imports relative to the price of exports
the index is given as X price index/M price index x 100
if anything, ull get a multiple guess or short answer on it, so all u gotta realli kno is that wen import prices increase relative to export prices, our terms of trade has deteriorated ...and when export prices increase relative to import prices, terms of trade improve
trade weighted index is the mesurement of, say Aust.'s currency against the currencies of all our major trading partner's with out most major partners given a higher weighting...its like an effective exchange rate that uses value of imports and exports to determine the index.
both these relate to the CAD by...something like if our terms of trade is deteriorating, theres more pressure on CAD and therefore external instability...same with TWI...if our TWI decreases, external stability worsens
the reasons as to why should b in ur text book
the index is given as X price index/M price index x 100
if anything, ull get a multiple guess or short answer on it, so all u gotta realli kno is that wen import prices increase relative to export prices, our terms of trade has deteriorated ...and when export prices increase relative to import prices, terms of trade improve
trade weighted index is the mesurement of, say Aust.'s currency against the currencies of all our major trading partner's with out most major partners given a higher weighting...its like an effective exchange rate that uses value of imports and exports to determine the index.
both these relate to the CAD by...something like if our terms of trade is deteriorating, theres more pressure on CAD and therefore external instability...same with TWI...if our TWI decreases, external stability worsens
the reasons as to why should b in ur text book
Ok, to try and explain better, ive ripped this straight from a textbook:
"At any one time, the $AU mayb be strengthening against some currencies and weakening agaisnt other currencies, while some of the $AU exchange rates remain relatively stable. To give some overall guide to the relative significance of the often contradictory movements in these exchange rates, the RBA calculates a Trade Weighted Index to show the true value of the $AU. Changes in the $AU agaisnt the currencies of our major trading partners (that is, the ones we import from and export to the most) are indexed against a base year and weighted to place a greater emphasis on changes in the exchange rates of most siginificance to our trade and balance performance."
and from my statement b4, out = our
"At any one time, the $AU mayb be strengthening against some currencies and weakening agaisnt other currencies, while some of the $AU exchange rates remain relatively stable. To give some overall guide to the relative significance of the often contradictory movements in these exchange rates, the RBA calculates a Trade Weighted Index to show the true value of the $AU. Changes in the $AU agaisnt the currencies of our major trading partners (that is, the ones we import from and export to the most) are indexed against a base year and weighted to place a greater emphasis on changes in the exchange rates of most siginificance to our trade and balance performance."
and from my statement b4, out = our
-=«MÄLÅÇhïtÊ»=-
Gender: MALE!!!
How it relates to external stability:
If u have poor terms of trade, then you pay more for imports, then exports.
ie. money is leaking out of economy. So there is a deficit in the merchandise section of BOP.
Therefore, poor terms of trade leads to growing CAD and external instability.
If u have poor terms of trade, then you pay more for imports, then exports.
ie. money is leaking out of economy. So there is a deficit in the merchandise section of BOP.
Therefore, poor terms of trade leads to growing CAD and external instability.
-=«MÄLÅÇhïtÊ»=-
Gender: MALE!!!
I think they're set by the ABS, not sure though
I doubt its important in knowing how they calculate the TWI. I would think they calculate it on a sample of goods like how they calculate the CPI.
It's just an index out of 100.
If exports/imports < 100 -----> poor terms of trade
If exports/imports > 100 -----> good terms of trade
I doubt its important in knowing how they calculate the TWI. I would think they calculate it on a sample of goods like how they calculate the CPI.
It's just an index out of 100.
If exports/imports < 100 -----> poor terms of trade
If exports/imports > 100 -----> good terms of trade
yeah
the its most probable they'll ask a TWI question the multiple choice (ie, what is it) or in the short answers where they'll ask "using the table, state if terms of trade has improved or deteriorated in year3" or something like that
the its most probable they'll ask a TWI question the multiple choice (ie, what is it) or in the short answers where they'll ask "using the table, state if terms of trade has improved or deteriorated in year3" or something like that