Question: Compensating balances: Require a commitment fee Earn high rates of interest for the firm Are ordered monthly ( or quarterly ) following forecasts based on

Compensating balances:
Require a commitment fee
Earn high rates of interest for the firm
Are ordered monthly (or quarterly) following forecasts based on cash budget analysis to compensate for shortfalls
Are used to finance inventories
Increase the effective interest earned by banks on credit lines

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