Final answer:
The statement is true; the use of financial leverage necessitates a careful consideration of risk, not merely the maximization of profit. There is a fundamental tradeoff in financial investments between return and risk, which affects investment decisions.
Step-by-step explanation:
The statement, "Use of financial leverage must consider risk, not just maximizing profit", is true. Financial leverage involves the use of borrowed money to increase the potential return of an investment. While it can amplify profits when investments perform well, it also increases the potential losses if investments perform poorly. Therefore, it is essential to consider the associated risks carefully alongside the potential for maximizing profits. Firms need a reliable source of financial capital, and during periods of low profits or losses, excessive leverage can threaten the firm's survival.
When evaluating financial investments, it is necessary to assess not just the expected rate of return but also the associated risks and liquidity. A balance must be struck between the desire for high returns and the tolerance for risk. If the risk level of an investment increases, investors may choose to shift their funds to less risky alternatives, affecting the supply of financial capital for the original investment.
This tradeoff between return and risk affects how savers and investors allocate their funds among various financial instruments. Ultimately, personal preferences and time frames play a significant role in these decisions, but the necessity to consider risk is universal in the realm of financial investment.