Compensating balances are: A. cash balances held at the firm in excess of its transactions needs. B. cash balances held at the firm that are below that of its transactions needs. C. cash balances held at the firm in excess of its cash inflows. D. cash balances held at commercial banks to pay implicitly for bank services. E. None of the above.
If the compensating balance were informal without a contractual agreement that restricts the use of cash, the compensating balance can be reported as part of cash and cash equivalents, with note disclosure of the arrangement. 6. How are the rules under US GAAP and IFRS different regarding bank overdrafts?
C. negative because the cash balance has a financing cost. D. positive because decreasing the cash decreases the cost of illiquidity. E. None of the above.
Which of the following describe compensating balances? Compensating balances are a specified balance a borrower of a loan is asked to maintain in a low-interest or noninterest-bearing account at the bank.
A compensating balance is a minimum deposit that must be maintained in a bank account by a borrower. The requirement for a compensating balance is most common with corporate rather than individual loans.
Compensating balances. A compensating balance is a minimum balance that must be maintained in a bank account, and the compensating balance is used to offset the cost incurred by a bank to set up a business loan.
A compensating balance is a balance that must be kept with a lender in order for a borrower to qualify for a line of credit or instalment loan. Effectively it acts as collateral and thus compensates the lender for the risk of making the loan.
Compensating balances is defined as the minimum amount which the borrower keeps with the bank. It is pre-requisite for the loan to be granted. Compensating balances are common for corporate loans.
Depending on your credit history, you may be required to keep a deposit of funds at the bank to qualify for the loan. This deposit is known as a compensating balance and reduces the bank's total risk in making a loan. If you fail to repay the loan, the bank can seize the compensating balance.
Compensating balances are considered restricted cash and must be reported on a company's financial statement.
Cash must be segregated if it is held as a compensating balance. According to the SEC, if the compensating balances are legally restricted, the cash held as a compensating balance must be shown as a separate line item from unrestricted cash in the current assets section of the balance sheet.
Which of the following is true concerning deposits held as compensating balances? They may be included as cash if legally restricted and held against short-term credit.
A compensating balance is a balance that must be kept with a lender in order for a borrower to qualify for a line of credit or instalment loan. Effectively it acts as collateral and thus compensates the lender for the risk of making the loan.
Compensating balances also decrease the proceeds of the loan. As proceeds decline, the effective interest rate rises. Example: You borrow $ 30,000 at 12%. The Bank requires that you maintain a 10% compensating balance.
Earned Interest - The payment you receive for allowing a financial institution or corporation to use your money. EE Bond - EE is a type of bond that is normally purchased at half its face value and must be held for at least one year before being cashed.