Currency Depreciation -  Worsening of a Country's Balance of Trade?

Balance of trade is basically records the net exports of a nation (Exports-Imports). A worsening or a deficit of the Balance of trade means that the value of imports exceeds those of exports.

Basically when a country’s Terms of Trade worsens, become more expensive relative to the price of exports.

The outcome of the Balance of trade will largely depend on the Price Elasticity of Demand (PED) of both and exports. (PED is defined as the change in quantity demanded of a good to a change in its price)

Why do trade deficit increase initially? Remember that a country’s and are determined by 2 variables, Price (P) and Quantity (Q). When the Exchange Rate falls, quantity of decrease and quantity of rise while the price of rise and the price of fall. In the short run, Price tends to predominate over the quantity effects, so the Balance of trade deficit becomes larger (or surplus reduces).

As a conclusion, we can only determine whether a worsening of the Terms of Trade results in the worsening of the Balance of trade if we take into account other factors such as elasticity of both and and inflation rates both domestically and in foreign countries. It is up to the government to take certain steps and policies to manipulate Terms of Trade and Balance of trade to the greater benefit of the country.