Which of these is the requirement of the firm to keep a certain percentage of the borrowed money deposited in the firm's bank accounts, whereby the bank agrees to lend money to the firm?
A) commercial loan
B) line of credit
C) compensating balance
D) inventory loan

Question

Quizplus · Accepted Answer

The requirement of the firm to keep a certain percentage of the borrowed money deposited in the firm's bank accounts is called a compensating balance. This is often required by banks when they lend money to a firm, as a way to ensure that the firm has a certain level of liquidity and can pay back the loan. The compensating balance is typically a percentage of the loan amount, and is held in a separate account that cannot be used by the firm. The other options (A) commercial loan, (B) line of credit, and (D) inventory loan do not involve the requirement of compensating balances.

Which of These Is the Requirement of the Firm to Keep