Because financial markets can be extremely volatile,with bond and stock prices changing significantly from day to day,a firm's management has much greater control over the firm's operating leverage than over its financial leverage.

Question

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Operating leverage is primarily determined by a firm's fixed versus variable costs in its production process, which is not easily adjustable in the short term, whereas financial leverage, determined by the firm's use of debt, can often be more directly managed or adjusted by the firm's management through decisions on borrowing and capital structure.

Because Financial Markets Can Be Extremely Volatile,with Bond and Stock