A Compensating Balance: I

Multiple Choice

A compensating balance: I. is required when a firm acquires bank financing other than a line of credit.
II) increases the cost of short-term bank financing.
III) represents an opportunity cost to the lending institution.
IV) is often used as a means of paying for banking services received.

A) I and III only
B) II and IV only
C) II and III only
D) I and IV only
E) I, II and IV only