financial-leverage

Vocabulary Word

Definition

'Financial leverage' means using debt to finance an investment. The goal is to increase the earnings that could be gained from the investment, but it also involves more risk.

Examples in Different Contexts

In real estate investing, 'financial leverage' is used to finance property purchases with mortgage loans instead of full cash payments. A real estate developer might note, 'Using financial leverage allows us to control larger properties with a smaller initial investment.'

Practice Scenarios

Economics

Scenario:

Country X's economic health is deteriorating. Their economic strategies need a serious reevaluation.

Response:

The government needs to lower their financial leverage to prevent further economic destabilization.

Investment

Scenario:

I'm thinking of expanding my portfolio, and I'm open to slightly higher-risk options.

Response:

Let's look at using some sort of financial leverage for investment diversification.