A compensating balance is
A)cash held by a foreign government.
B)a balance maintained by the company to pay the employees' payroll.
C)a minimum cash balance that must be maintained on deposit.
D)items which are not cash, but equivalent to cash.

Question

Quizplus · Accepted Answer

A compensating balance is a minimum amount of cash that a bank requires a borrower to keep on deposit as a condition for granting a loan or extending credit. This requirement reduces the risk to the lender and may allow the borrower to obtain a lower interest rate on the loan.

A Compensating Balance Is