Compensating Balances Are Frequently a Part of Revolving Lending Arrangements

question 2

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 financing are there that the firm could use as an alternative?

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Definitions:

Object Permanence

Object permanence is the understanding that objects continue to exist even when they cannot be seen, heard, or otherwise sensed, a crucial milestone in cognitive development during infancy.

Hiding Place

Hiding Place denotes a location where someone or something can be concealed, often used either in games such as hide-and-seek or in serious contexts such as protection from danger.

Alphabet

A set of written symbols or characters representing the basic sounds of a language, used in the systematic organization of writing.

Intuitive Thought

A cognitive process that involves making judgments and solving problems without the explicit use of analytical rationale.