"A compensating balance essentially increases the interest rate on money borrowed." Explain.

A.True. If a compensating balance is required, a borrower pays a one-time sum of up to 10% of the loan balance.

B. True. If a compensating balance is required, a borrower does not have use of the entire amount borrowed.

C. False. If a compensating balance is required, a borrower does not have use of the entire amount borrowed. However, the interest rate is only charge on the amount that is available.

D. False. If a compensating balance is required, a borrower has use of the entire amount borrowed. However, the interest rate is variable depending on the loan amount.

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