Target cash balances are generally not affected by compensating balance requirements except during periods of high interest rates and tight money.

Question

Quizplus · Accepted Answer

Compensating balance requirements can affect target cash balances as they require a portion of funds to be kept in a non-interest bearing account, reducing the amount available for investing or meeting cash needs. This can become more significant during periods of high interest rates and tight money as the cost of holding non-interest bearing accounts increases, potentially reducing the overall amount of available cash.

Target Cash Balances Are Generally Not Affected by Compensating Balance