Which of the Following Statements Is Most Correct

Multiple Choice

Which of the following statements is most correct?

A) Compensating balance requirements apply only to businesses, not to individuals.
B) Compensating balances are essentially costless to most firms, because those firms would normally have such funds on hand to meet transactions needs anyway.
C) If the required compensating balance is larger than the transactions balance the firm would ordinarily hold, then the effective cost of any loan requiring such a balance is increased.
D) Banks are prohibited from earning interest on the funds they force businesses to keep as compensating balances.
E) None of the statements above is correct.