The required compensating balance is usually computed as a:
A) percentage of customer loans outstanding.
B) factor of accounts receivable.
C) the bank's commitment to LIBOR.
D) pledge of inventory value.

Question

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The required compensating balance is usually computed as a percentage of customer loans outstanding. This means that a certain percentage of the loans that a customer takes out from the bank must be held in a non-interest-bearing account as a compensating balance. For example, a bank may require a customer to maintain a compensating balance of 10% of their outstanding loans. This helps to offset the risk that the bank takes on by lending money to the customer.

The Required Compensating Balance Is Usually Computed as A