The term of trade can be expressed as

Analyze the question: The question asks for the formula for the terms of trade, which compares what a country earns from its exports with what it pays for its imports.

Explain the concept: The (commodity or net barter) terms of trade measure the rate at which a country's exports exchange for its imports. The formula is:

Terms of Trade = (Index of export prices ÷ Index of import prices) × 100

• If the result is above 100, the terms of trade are favourable. Export prices have risen relative to import prices, so each unit of exports buys more imports.
• If the result is below 100, the terms of trade are unfavourable. The country must give up more exports to buy the same quantity of imports.

Check each option:

• A. Export ÷ Export always gives 1, so the result is always 100. It tells us nothing, so it is wrong (and is probably a misprint).
• B. Import ÷ Export is the inverse of the correct formula, so it is wrong.
• C. Export ÷ Import × 100 matches the standard formula, so it is correct.
• D. Adding the two indices has no economic meaning here, so it is wrong.

Exam tip: Remember "Export on Top", as in Export/Import. Exports go in the numerator because a rise in export prices improves a country's terms of trade. Also watch for options with the same index on top and bottom, like A. They are usually distractors.