Which of these is the requirement of the firm to keep a certain percentage of the borrowed money deposited in the firm's bank accounts, whereby the bank agrees to lend money to the firm?
A) Commercial loan
B) Line of credit
C) Compensating balance
D) Inventory loan

Question

Quizplus · Accepted Answer

Compensating balance is a requirement by banks for firms to keep a certain percentage of the borrowed money deposited in the firm's bank accounts as a condition for the loan. This ensures the bank has some security and also encourages the firm to maintain a relationship with the bank.

Which of These Is the Requirement of the Firm to Keep