Question

Compensating balances are

a. balances banks may require depositors to maintain as a minimum in their cash accounts.
b. requested lines of credit.
c. desired loan amounts.
d. amounts of required payments on liabilities.

Answer 1

Compensating balances are minimum balances that banks may require depositors to maintain in their cash accounts.

Step-by-step explanation:

Compensating balances are minimum balances that banks may require depositors to maintain in their cash accounts. These balances serve as a requirement imposed by the bank and can vary in amount depending on the specific bank and the type of account. They are used to offset the costs associated with providing certain services to the account holder.