Define compensating balances, Financial Management

Assignment Help:

What are compensating balances and why do banks require them from some customers?  Under what circumstances would banks be most likely to impose compensating balances?

Compensating balances are funds which a bank needs a customer to keep in a non-interest bearing account till the loan is retired.  Banks occasionally impose compensating balance needs so as to increase the bank’s return on a loan.  Compensating balances are most similarly to be employed when the stated interest rate on a loan is below the bank’s required rate of return.


Related Discussions:- Define compensating balances

Report on the valuation of endess, Q. Report on the valuation of Endess? ...

Q. Report on the valuation of Endess? Ideally the valuation must be based upon the present value of incremental cash flows that result from the buy-in but in practice this data

Calculate the confidence interval of returns, Following are return expectat...

Following are return expectations on the S&P 500 index for the upcoming year with the corresponding probabilities: Expectation                                   Return

A-/a3, This is usually the third- or fourth-highest rating that a rating ag...

This is usually the third- or fourth-highest rating that a rating agency allocates to a security or insurance carrier. It is frequently the lowest investment-grade rating, but it i

Modern approach, Meaning merits nd demerits of modern approch of financial ...

Meaning merits nd demerits of modern approch of financial management

Describe the dividend yield method, Q. Describe the Dividend Yield Method? ...

Q. Describe the Dividend Yield Method? Dividend Yield Method: - This process is based on the assumption that when an investor invests in the equity shares of a company he expec

Stock Valuation, You have just purchased a stock that would pay the dividen...

You have just purchased a stock that would pay the dividends of the first four years as D1 = $0.65, D2 = $0.74, D3 = $0.79, D4 = $0.84. You were also told that the dividends would

Expected value application in finance - project evaluation, Project Evaluat...

Project Evaluation The expected value calculations are crucial to project investment decisions. The following example explains the use of probabilities in project evaluation.

Explain and compare the costs of hedging, Explain and compare the costs of ...

Explain and compare the costs of hedging via the forward contract and the options contract. Answer: There is no up-front cost of hedging through forward contracts. Though, in t

Importance of the government securities markets, Need to Widen and Deepen t...

Need to Widen and Deepen the Government Securities Market The importance of the Government Securities markets can be evaluated from three angles as follows: From the Gove

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd