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COURSES

Financial leverage

Financial leverage

Risk and return

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Presentation of the Financial leverage course   #codeLecon#

Course objectives

The Financial leverage course deals with a mechanism well used in financial markets by both individuals and financial institutions. The use of leverage allows investors to increase the size of their market positions. It also increases the (expected) return of their investment although the two other characteristics - risk and liquidity - are also impacted (increase in risk and decrease in liquidity).

This course will answer the following questions: what is financial leverage? How can you leverage your market position by buying and selling on credit? What is the implication of leverage in terms of (expected) return, risk and liquidity?

Teaching objectives

The Financial leverage course will be the opportunity to work on key concepts in finance: (expected) return, risk and liquidity. Although the emphasis when using leverage is put on (expected) return, we will show that the two other characteristics of the investment - risk and liquidity - are also impacted (increase in risk and decrease in liquidity).

Learning goals

The Financial leverage course will allow you to learn in practice the following points of finance:

  • Manage a position using financial leverage (buy and sell securities on credit)

  • Feel the increase in performance, the increase in risk, and the decrease in liquidity by using financial leverage.

After or during this course, you can practice what you learned by launching the simulations associated to this course.

Grading

Your grade for this course takes into account the following elements:

  • Reading the pages of the course: 5 points for each page read

  • Your results for the MCQ tests: 50 points for each MCQ test

  • Your results for the comprehensive MCQ test: 100 points for the comprehensive MCQ test

About the author of the course

Professor Franois Longin
ESSEC Business School

« Financial leverage is an interesting example to illustrate the triptych: (expected) return, risk and liquidity. Very important concept to understand the world of finance. »

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