Just as greater leverage multiplies a bank's potential profits,it also multiplies a bank's potential losses.

Question

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This statement is true. When a bank uses leverage, it is borrowing a larger amount of money to invest in assets. If these assets increase in value, the bank can make larger profits than it would have without leverage. However, if the assets decrease in value, the bank's losses are also multiplied because it still owes the borrowed amount of money. This is known as the "leverage effect."

Just as Greater Leverage Multiplies a Bank's Potential Profits,it Also