The Most Frequently Cited Justification for Requiring a Compensating Balance

question 135

Multiple Choice

The most frequently cited justification for requiring a compensating balance is:

• A) for a commission; to cover the costs of loaning the money
• B) to be reassured of some recovery in the event of bankruptcy of the firm
• C) to make bank borrowers also be depositors
• D) to pay interest for the use of the money

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Definitions:

Period of Time

A length or duration of moments which is measured in terms of seconds, minutes, hours, days, months, or years.

Capacity Decision

A determination made regarding the amount of production resources needed to meet expected demand.

Variable Costs

Costs that vary directly with the level of production or the volume of output.

Special Assumption

A specific condition assumed to be true for the purpose of a theoretical framework or model, which may not apply in all real-world situations.