Financial risk refers to the increased potential for volatility in investment performance created by the use of borrowed money. This concept is closely tied to leverage and equity investment, impacting the overall financial stability of an investment.
Leverage involves the use of borrowed funds to increase an investor's purchasing power and potentially amplify the profitability of an investment. It can result in higher returns but also carries additional risk.
Positive leverage refers to the use of borrowed funds that enhances the return on investment. It indicates that the cost of borrowing is lower than the return generated by the investment.
