Firms Are Often Known to Pay Commitment Fees to Banks

question 76

Essay

Firms are often known to pay commitment fees to banks for the privilege of receiving a line of credit. Does it make sense for a firm to pay for something that, at least at the present time, it does not know whether it will use?

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Definitions:

Tension

A force that stretches something to make it longer or wider.

Solid-State Alteration

The process of mineralogical and structural changes in rocks without melting, often through heat, pressure, or chemical exchange.

Metamorphic

Pertaining to rock that has undergone transformation by heat, pressure, or other natural agencies.

Pressure

The force exerted per unit area by gases, liquids, or solids on the walls of their container or on objects in contact with them.