Answer-first summary for fast verification
Answer: Position limits are meant to prevent speculators from exercising undue influence on the market
**B is true.** Position limits are designed to restrict the number of contracts a trader may hold and thereby reduce the potential for market manipulation or excessive influence. Why the others are false: - **A**: Price limits are not primarily intended to stop speculators from influencing the market. - **C**: Daily price limits can have drawbacks; they may delay price discovery and sometimes make volatility worse later. - **D**: Daily price limits have not generally been eliminated. **Correct answer: B**
Author: Manit Arora
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Question 142.3: According to Hull, which of the following is TRUE in regard to price and position limits?
A
Price limits are meant to prevent speculators from exercising undue influence on the market
B
Position limits are meant to prevent speculators from exercising undue influence on the market
C
Daily price limits have no downside for markets because they prevent large price movements due to speculative excess
D
Daily price limits have generally been eliminated because exchanges discovered they were an artificial barrier to trading
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