A Compensating Balance: I

question 97

Multiple Choice

A compensating balance: I.is required when a firm acquires bank financing other than a line of credit.
II) increases the cost of short-term bank financing.
III) represents an opportunity cost to the lending institution.
IV) is often used as a means of paying for banking services received.

• A)I and III only.
• B)II and IV only.
• C)II and III only.
• D)I and IV only.
• E)I, II and IV only.

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Definitions:

Oil Rigs

Structures used for drilling wells to extract oil and gas from underground reservoirs.

Stockholders

Individuals or entities that own one or more shares of stock in a corporation, making them part owners of the company.

Bondholders

Individuals or entities that own bonds, which are debt securities issued by corporations or governments.

Corporation

A legal entity that is separate and distinct from its owners, providing them with limited liability and the ability to raise capital by selling shares.