Money deposited by a borrower with a bank in a low or non-interest-bearing account as a condition of a loan agreement is called a:
A) compensating balance.
B) secured credit deposit.
C) letter of credit.
D) line of cash.
E) pledge.

Question

Quizplus · Accepted Answer

Money deposited by a borrower with a bank in a low or non-interest-bearing account as a condition of a loan agreement is called a compensating balance. This balance helps the bank mitigate the risk of the loan and is an effective way for the bank to ensure that the borrower maintains a certain level of liquidity, creating a win-win situation for both parties involved.

Money Deposited by a Borrower with a Bank in a Low