A(n) ________ effectively raises the interest cost to the borrower on a line of credit.
A) operating-change restriction
B) annual cleanup
C) compensating balance
D) commitment fee

Question

Quizplus · Accepted Answer

A compensating balance is a minimum balance that must be maintained in a bank account, often required by banks as a condition for extending a line of credit. This requirement effectively reduces the amount of credit available to the borrower, thereby increasing the effective interest rate on the funds actually available for use.

A(n) ________ Effectively Raises the Interest Cost to the Borrower