Final answer:
The process by which Storgan Manley borrows money to invest for increased profitability is called leverage. Leverage amplifies potential returns using borrowed capital, but associated practices like securitization can increase the risk of subprime lending.
Step-by-step explanation:
The process used by Storgan Manley, a large financial institution, to increase its profitability by borrowing money to invest is called leverage. Through leverage, the institution uses borrowed capital to enhance its potential returns. The firm can earn more from its investment than it costs to finance the borrowed funds, provided that the returns generated from the investments exceed the costs of borrowing.
However, the practice of securitization by financial institutions can introduce risks, such as the increased willingness to make subprime loans. Subprime lending includes loans given to borrowers who demonstrate No Income, No Job, or Assets (NINJA), often with terms such as low down payments and variable interest rates, which can lead to higher payments over time.