Compensating Balances

question 46

Multiple Choice

Compensating balances:

• A) are used to finance inventories.
• B) earn high rates of interest for the firm.
• C) are ordered monthly (or quarterly) following forecasts based on cash budget analysis to compensate for shortfalls.
• D) increase the effective interest earned by banks on credit lines.
• E) require a commitment fee.

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Definitions:

Corresponding Weights

The respective importance or influence assigned to components within a mathematical formula or financial model.

Probability Distribution

A mathematical representation that enumerates all possible values and the likelihood of each for a random variable within a determined boundary.

Coefficient Of Correlation

A statistical measure that calculates the strength and direction of the relationship between two variables.

Probability Distribution

A numerical function indicating all likely outcomes and their associated probabilities for a random variable across a designated range.