Here's an example of a "yen carry trade": a trader borrows 1,000 Japanese yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.
I was wondering how leverage and leverage factor are defined?
For leverage factor, from another source
The capital for the investment comes from equity and debt, and the amount of the debt divided by the total capital is the leverage factor.
it seems like different from the one used in investopedia. The latter, I guess, is the ratio of the debt to the equity?
Also what does leverage ratio of a bank mean in the following quote:
In 2008 typical leverage ratios were
Commercial banks: 10 to 1
Investment banks: 30 to 1
Thanks and regards!