Compensating Balances Are Frequently a Part of Revolving Lending Arrangements

question 80

Essay

Compensating balances are frequently a part of revolving lending arrangements with banks,yet they add to the cost of financing for the borrower.Why,then,would borrowers agree to such terms?
What other types of alternative financing are available?

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Definitions:

Standard Error

The standard deviation of the sampling distribution of a statistic, most commonly of the mean.

Sample Proportion

The proportion of items in a sample that meet a specified condition, often used as an estimator of the population proportion.

Binomial Distribution

A probability distribution representing the number of successes in a fixed number of independent Bernoulli trials with the same success probability.

Probability of Success

The likelihood of achieving a desired outcome or result in an experiment or trial.