Which of the Following Statements Is Correct

question 9

Multiple Choice

Which of the following statements is correct?

• A)Compensating balance requirements apply only to businesses, not to individuals.
• B)Compensating balances are essentially costless to most firms, because those firms would normally have such funds on hand to meet transactions needs anyway.
• C)If the required compensating balance is larger than the transactions balance the firm would ordinarily hold, then the effective cost of any loan requiring such a balance is increased.
• D)Banks are prohibited from earning interest on the funds they force businesses to keep as compensating balances.
• E)All of the above statements are correct.

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