A country's terms of trade can be improved by ____?

1. Analyze the question The terms of trade (TOT) measure the relationship between the prices a country receives for its exports and the prices it pays for its imports:

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

An improvement means export prices rise relative to import prices. So the country gets more imports for the same quantity of exports.

2. Evaluate each option

• A. Collective bargaining: This is negotiation between workers and employers over wages and conditions. It has nothing to do with international trade prices. ❌
• B. Imposing lower export duties: Lower export duties make exports cheaper to sell abroad and may increase export volume. They tend to lower the export price, which does not improve the TOT. ❌
• C. Revelation of currency: This is almost certainly a garbled "revaluation of currency", meaning an upward adjustment of the official exchange rate. A stronger currency makes imports cheaper in domestic terms, while exports earn more per unit in foreign-currency terms. This raises the export-to-import price ratio, so the TOT improves.)
• D. Reducing demand for imported goods: Lower demand can reduce the volume of imports and help the balance of payments. If the country is a large buyer, falling demand could push import prices down, which would help. But the usual textbook answer for a price-based improvement is the currency adjustment. This is a weaker choice. ❌

3. Note on the wording "Revelation" is a typo in the question. The intended word is "revaluation". Don't let this confuse you in the exam. Look for the option that makes sense economically.

4. Answer The correct option is C, revaluation of currency.

5. Exam tip Remember: Revaluation = Raises the currency's value = Rewards the TOT (imports get cheaper). Don't mix it up with devaluation, which lowers the currency's value and usually worsens the TOT, because exports become cheaper abroad.