Hedge funds commonly use financial leverage, which can
A)magnify their returns and magnify their losses.
B)magnify their returns and limit their losses.
C)reduce their risk and limit their losses.
D)magnify their returns and not affect their risk.

Question

Quizplus · Accepted Answer

Financial leverage can both magnify returns and magnify losses for hedge funds, as it involves borrowing capital to increase the potential return of an investment, which also increases the potential for higher losses if the investment does not perform as expected.

Hedge Funds Commonly Use Financial Leverage, Which Can