Fluctuation Limit

### What is a fluctuation limit? - [ ] An annual limit set by the government on commodity prices. - [x] A daily price movement restriction set by commodity exchanges. - [ ] A threshold for automatic trading set by individual traders. - [ ] A limit on the minimum price level for commodities. > **Explanation:** A fluctuation limit is a daily price movement restriction set by commodity exchanges to limit the volatility of commodity prices. ### Why are fluctuation limits implemented by commodity exchanges? - [x] To prevent excessive volatility and protect investors. - [ ] To maximize trading volumes. - [ ] To inflate the prices of commodities. - [ ] To control trading hours. > **Explanation:** Fluctuation limits prevent excessive volatility within a single trading day, offering protection to investors from extreme price changes. ### What happens when a commodity reaches its fluctuation limit? - [x] Trading for that commodity may be halted for the day. - [ ] The price is reset to the previous day's closing price. - [ ] The commodity is removed from the exchange. - [ ] Trading continues normally without interruption. > **Explanation:** Once a commodity's price reaches the fluctuation limit, trading may be halted for the day to prevent further price changes. ### Who sets the fluctuation limits for commodities? - [ ] The federal government. - [x] Commodity exchanges. - [ ] Individual brokers. - [ ] Central banks. > **Explanation:** Commodity exchanges set fluctuation limits based on historical volatility and current market conditions. ### What is a Limit Up scenario? - [ ] When trading volume exceeds historical averages. - [x] The maximum price increase allowed in a single trading day. - [ ] A minimum price drop for commodities. - [ ] A quarterly setting for maximum trading limits. > **Explanation:** Limit Up refers to the maximum amount by which the price of a commodity futures contract may increase in a single trading day. ### Can fluctuation limits change over time? - [x] Yes, based on market conditions or regulatory changes. - [ ] No, they are fixed once established. - [ ] Only during economic downturns. - [ ] Only through exchange voting. > **Explanation:** Fluctuation limits can be adjusted by exchanges based on market conditions, historical data, or regulatory requirements. ### What term describes the maximum amount a commodity can decrease in a single trading day? - [ ] Fluctuation Peak. - [ ] Floor Price. - [ ] Regular Limit. - [x] Limit Down. > **Explanation:** Limit Down is the term used for the maximum amount by which the price of a commodity futures contract may decrease in a single trading day. ### Do fluctuation limits apply to all commodities equally? - [ ] Yes, all commodities have the same fluctuation limits. - [x] No, they vary based on historical volatility and other factors. - [ ] Only to high-risk commodities. - [ ] They apply only during economic crises. > **Explanation:** Fluctuation limits vary among commodities and are set by exchanges based on historical volatility, market conditions, and other factors. ### Which of the following is a tool to manage daily price stability in futures markets? - [ ] Dividend Yield. - [ ] Earnings Report. - [ ] Market Cap. - [x] Fluctuation Limit. > **Explanation:** A fluctuation limit is a tool used to manage daily price stability in futures markets by setting limits on price movements. ### What factor primarily influences the determination of fluctuation limits? - [x] Historical volatility of the commodity. - [ ] Average trading volume. - [ ] Government regulations. - [ ] Broker preferences. > **Explanation:** The primary factor influencing the determination of fluctuation limits is the historical volatility of the commodity.