Question

In: Economics

Fill in the blanks of the following sentence. When financial markets are ________, leverage ________; when...

Fill in the blanks of the following sentence. When financial markets are ________, leverage ________; when they are ________, leverage ________.

crashing; mitigates the losses; booming; mitigates the gains

None of these statements is true.

booming; multiplies the gains; crashing; magnifies the losses

booming; magnifies the losses; crashing; multiplies the gains

Solutions

Expert Solution

When financial markets are BOOMING, leverage MULTIPLIES THE GAINS; when they are CRASHING, leverage MAGNIFIES THE LOSSES.

Leverage provide multiplier effect to your investment and when we use leverage in our trade or investment then it can multiply our gains and even in downturn maximize losses if market move against your bet.


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