Compensating balances:
A) are used by banks as a substitute for charging service fees.
B) are created by having a concentration account.
C) generate returns to customers from interest bearing accounts.
D) are used to reward new accounts.

Question

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Compensating balances are a requirement imposed by banks that customers maintain a minimum balance in their account as a substitute for charging service fees. The minimum balance requirement is typically a percentage of the loan amount and can be used to offset the operational costs of maintaining the account.

Compensating Balances