Cash is considered an idle asset because it does not earn interest. Good financial management requires a firm to hold a limited amount of cash, but it is important for the firm to hold sufficient cash so that it can pay its current obligations, maintain its credit rating, and meet its unexpected cash needs. The following statement refers to a type of cash balance. Select the best type of cash balance to complete the sentence: A cash balance is required by many banks that perform services for the firm. Consider the following case of Seattle Builders Inc.: Imagine that Seattle Builders Inc. is a manufacturing company. Seattle's financial managers have begun running a lot of the firm's banking affairs through a larger bank. The new bank has more experience dealing with firms of Seattle's stature. The new bank charges very low fees for its services but does require that Seattle keep a minimum balance in its account. What type of cash balance is this?  

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The type of cash balance described in the given scenario is a compensating balance This is where the bank requires a minimum balance to be maintained ... View the full answer