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.

Analyze the effectiveness of various tools and methods in planning and decision-making.

Appreciate the dynamic nature of management functions in adapting to fast-changing environments.

Grasp the importance of mission and vision in guiding organizational planning.

Understand how first-mover advantage impacts an organization's profitability and market position.

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Definitions:

Per Month

A term indicating the occurrence or measurement of something on a monthly basis.

Compounded Quarterly

Interest on an investment or loan calculated four times a year, adding each interest payment to the principal for future calculations.

Compounded Monthly

A system for calculating interest on a monthly cycle, including the original deposit or loan amount plus the accumulated interest from earlier cycles.

Promissory Note

A written promise to pay a specified sum of money to a designated party at either a fixed or determinable future date.