Bank loans to business firms:

Question

Quizplus · Accepted Answer

Bank loans to business firms may require compensating balances, which are minimum balances that borrowers must maintain in their accounts with the bank in order to offset the bank's risk for loaning the funds. A) is incorrect as bank loans can be short-term or long-term depending on the nature of the loan. B) is incorrect as business loans are typically self-liquidating, meaning the funds are used to finance a specific project or purchase and are then repaid through the cash flows generated by the project or purchase. C) is incorrect as commercial paper is a type of short-term financing used by corporations, but is not typically required for bank loans.

Bank Loans to Business Firms