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Answer: c) Bad because they can become an artificial barrier to trading
According to Hull, price limits are generally considered **bad on balance** because they can become an **artificial barrier to trading**. **Why C is correct:** - Price limits may stop trading before supply and demand can equilibrate. - They can delay price discovery rather than improve it. **Why the other options are wrong:** - **A**: Hull does not treat them as having no practical impact. - **B**: While they may curb extreme moves, Hull emphasizes their downside. - **D**: The question asks for the overall judgment; Hull’s view is more clearly negative.
Author: Manit Arora
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Q-150.2. According to Hull, are price limits (i.e., limit up, limit down, and limit move) specified in a futures contract, on balance, good or bad?
A
a) No advantage or disadvantage ("no likely practical impact")
B
b) Good because they prevent large price moves due to speculation
C
c) Bad because they can become an artificial barrier to trading
D
d) Unclear because they both prevent large price moves but may become an artificial barrier
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