The basic feature of a/an ________ required by some banks is that it effectively raises the interest cost to the borrower for an overdraft facility.
A) operating change restriction
B) compensating balance
C) commitment fee
D) annual cleanup

Question

Quizplus · Accepted Answer

A compensating balance is a minimum balance that must be maintained in a bank account, often required by banks as a condition for extending a loan or overdraft facility. This requirement effectively increases the cost of borrowing because the borrower must keep a certain amount of money in the account that does not earn interest, or earns very little, thereby increasing the effective interest rate on the borrowed funds.

The Basic Feature of A/an ________ Required by Some Banks