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Leverage
Means of enhancing profitability using borrowed money by exploiting the fact that the rate of interest on equity capital is higher than the interest payable on borrowed funds. A leverage effect can also be achieved with derivatives, enabling market operators to invest in sizeable holdings of an underlying for a relatively modest capital outlay. The upshot of leveraging is that any percentage change in the gains and losses on options and futures contracts will be larger than the corresponding change in the underlying.
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- Part of Speech: noun
- Synonym(s):
- Blossary:
- Industry/Domain: Banking
- Category: Investment banking
- Company: UBS
- Product:
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