Which financial concept involves both risk and potential reward through borrowed funds?

Financial leverage is the concept that involves using borrowed funds to increase the potential return on investment. By taking on debt, a company or individual can invest in more assets or opportunities than they could with their own capital alone. This amplification of investment usually means that any potential gains can be significantly higher compared to using only equity. However, while leverage can enhance rewards, it also increases risk because if the investment does not perform well, the borrower is still obligated to repay the borrowed funds, often with interest. This dual nature of increased potential reward alongside increased risk is what fundamentally defines financial leverage.

The other choices represent different aspects of finance that do not directly involve this specific relationship between borrowed money and the potential for greater returns. Market capitalization relates to the total value of a company's outstanding shares, asset management is about managing investments to achieve specific goals, and tax accounting focuses on preparing tax returns and planning for future tax obligations, none of which inherently includes the concept of risk and reward through borrowing.