A minimum checking account balance that a firm must maintain with a bank to help offset the costs and services such as check clearing and cash management advice is called a _____ balance.

Question

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Compensating balance is the minimum balance that a firm must maintain with a bank to offset the costs of specific services, such as check clearing, cash management advice, and loan origination fees. This balance does not earn interest for the firm and is held as collateral against any outstanding loans or credit extended by the bank to the firm. The other options, such as transactions, precautionary, speculative, and convertible balances, do not refer to a minimum balance maintained with a bank.

A Minimum Checking Account Balance That a Firm Must Maintain