Final answer:
Ms. Ng should be aware that using leverage to buy securities can greatly increase both potential gains and risks. If the market declines, she might owe more than her investments are worth. Understanding the risks, commitment to interest payments, and potential for collateral seizure is crucial.
Step-by-step explanation:
Ms. Ng's registered sales representative should ensure she is fully aware of the implications of using leverage to purchase securities and mutual funds. Leverage involves using borrowed funds to increase one's investment capacity. When an investor uses leverage, like buying on margin, they can purchase more stock than they might otherwise afford by using their existing stock as collateral. This has the potential to amplify gains if the market moves favorably. However, it also comes with high risk; if the value of the securities declines significantly, the investor may suffer substantial losses and still owe the borrowed funds. Considering this, it is essential to understand that leveraging investments can lead to a situation where the investor owes more than the current value of their investments, causing serious financial distress. It's critical for Ms. Ng to consider the risks versus benefits and have a clear understanding of the commitments tied to any borrowed capital, such as the obligation to make interest payments and the potential for the lender to seize collateral if the loan is not repaid.