A Compensating Balance Restricts Cash; in Effect,it Increases the Interest

question 170

True/False

A compensating balance restricts cash; in effect,it increases the interest on the loan and reduces a company's liquidity.

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Definitions:

Assets and Liabilities

The resources owned by a company or individual that have value (assets) and the obligations owed to others (liabilities).

Common Shares

Units of ownership in a corporation, giving holders a proportion of the voting rights and potential dividends.

Functional Currency

The currency that most influences sales prices, labor, and material costs, and is often the currency in which most of the business transactions are denominated.

Translation Rate

The exchange rate used to convert the financial statements of a foreign subsidiary to the reporting currency of the parent company.