What does the term 'trade balance' refer to in the context of currency exchange?

The term 'trade balance' refers to the difference between the value of a country's exports and imports over a specific period. When a country exports more than it imports, it has a trade surplus, which is generally seen as a positive sign for the economy. Conversely, if a country imports more than it exports, it has a trade deficit, which can indicate economic challenges. For example, if a country sells goods worth $100 million abroad but buys $80 million worth of foreign goods, it has a trade surplus of $20 million. Understanding trade balance helps us see how countries interact economically and how it affects currency exchange rates.