A special form of collateral used by banks whereby the borrower is required to keep a proportion of the proceeds of the loan in a checking account in the bank.
A) checking balances
B) loan collateral balance
C) deposit balances
D) compensating balances

Question

Quizplus · Accepted Answer

Compensating balances are a requirement by banks for borrowers to keep a portion of the loan amount in a checking account at the bank, serving as a form of collateral.

A Special Form of Collateral Used by Banks Whereby the Borrower