A compensating balance, which is a required checking account balance equal to a certain percentage of the borrower's short-term unsecured loan, may not only forces the borrower to be a good customer of the bank but may also raise the interest cost to the borrower, thereby increasing the bank's earnings.

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This statement is true. Compensating balances are often used by banks to ensure that the borrower maintains a certain level of deposits with the bank, which can be used to offset any potential losses if the borrower defaults on the loan. However, this can also increase the interest cost to the borrower, as they are effectively paying for the privilege of having access to the loan. This, in turn, can increase the bank's earnings.

A Compensating Balance, Which Is a Required Checking Account Balance