The leverage in which the so-called recourse borrowing is used. It is backed by collateral posted by the borrower. The lender (provider of leverage) can collect from (i.e., have recourse to) the borrower (user of leverage) and/ or borrower’s assets in case of default. Financial leverage is a recourse leverage, as it provides for a direct claim on all the assets, not just those being financed (by leverage). Examples include derivatives, synthetic products, and mark-to-market (MTM) repos on cash investments.
November 24, 2024
