Asked by Caitlin Gamble on Jun 17, 2024
Verified
A minimum cash balance required by a bank is called
A) cash in bank
B) a cash equivalent
C) a compensating balance
D) an EFT
Compensating Balance
A minimum bank account balance that a borrower agrees to maintain as a condition for borrowing from a lender.
Minimum Cash Balance
The least amount of cash a company aims to hold in its accounts to meet immediate transaction demands.
Bank Requirement
Specific conditions imposed by a bank on a borrower or account holder, including minimum balances and fees.
- Recognize the importance of maintaining a minimum cash balance (compensating balances).
Verified Answer
MC
Macel CheckJun 19, 2024
Final Answer :
C
Explanation :
A compensating balance is a minimum balance requirement set by a bank for a borrower to maintain in their account. This requirement is often set as a percentage of the loan's outstanding balance or a fixed dollar amount. The compensating balance provides the lender with additional security and helps ensure that the borrower will be able to make their loan payments on time.
Learning Objectives
- Recognize the importance of maintaining a minimum cash balance (compensating balances).