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Business Studies

Money Market

Which of the ...

Question

Which of the following is studied with the help of financial leverage?

A

Marketing Risk

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B

Interest Rate Risk

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C

Foreign Exchange Risk

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D

Financing Risk

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Solution

The correct option is D Financing Risk
Financial leverage represents the amount of debts that an equity uses to buy additional assets. Its basically represents the proportion of debt in the capital structure of the company. Higher the debt in the capital structure, higher is the financial leverage with high financing risk. Companies with high leverage are considered to be high risk of bankruptcy.

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