Explanation:
Price limits are the maximum price movement/limit set by exchanges. Suppose the intraday increase in the price of the futures contract is equal to the predefined price limit. In that case, the contract is said to be limit up, whereas if the intraday decrease in the price of the futures contract is equal to the predefined price limit, the contract is said to be limit down. Since the newspaper reads that the price of the contract closed limit down (price decreased by Rs. 4) at Rs. 138, the preceding day (i.e., Tuesday) price is:
Limit down close to the current day = Closing price of the preceding day − Price limit
The closing price of the preceding day = Rs. 138 + Rs. 4 = Rs. 142
Q.609 The Karachi Mercantile Exchange (KME) has set the daily price limit of rice futures contracts to Rs.4. The closing price of the rice futures contract on Monday was Rs.140 per 100 KG. If the evening newspaper on Wednesday reads that "Rice futures contracts closed limit down at Rs.138 per 100 KG," then which of the following is the most likely closing price of the rice futures contract on the preceding day?
A
Rs. 136 per 100/KG
B
Rs. 140 per 100/KG
C
Rs. 142 per 100/KG
D
None of the above
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