Question

1 Compensating balances:a) are used by banks as a substitute for charging service fees.b) are created by having a sweep account.c) generate returns to customers from interest-bearing accounts.d) are used to reward new accounts.2 Monthly installment loans usually increase the effective interest rate of borrowing by approximately 2 times the stated interest rate.True/Flase

Answer 1

A.

Compensating balances are used by banks as a substitute for charging service fees

Step-by-step explanation:

Compensating balance is the amount of money that a customer who uses the bank's services, has to keep in an account. The purpose of this money will be to offset the cost incurred by the bank in the course of making its services available to the customer.