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With a compensating balance program, the insured frees up cash and receives current tax deductibility for this amount because "economic performance" has been satisfied by the payment of premium to the insurance company.
The Concentration Account Should Operate On A "target Balance" Basis, Whereby The Required Balance To Support Activity Charges Will Become The Compensating Balance. The Objective Is To Maintain The Target Balance To Support Activity Charges Based On An Average Balance Over A Six Month Period.
These clearing balances are similar to the compensating balances offered by depository institutions to their business customers.
Banks can optimize the value of these deposits, whereas mortgage bankers typically use them as compensating balances that reduce their cost of financing.
A corn producer that thinks she will produce 15,000 bushels of corn but only sells one corn futures contract as a hedge is severely under-hedged by 10,000 bushels and will not have compensating balances of risk.
The second and third illustrative letters (not reproduced here) may be used to confirm compensating balances and lines of credit, respectively.
Those funds are used as compensating balances to reduce the rate of interest charged by the warehouse lender for the borrowed funds.
Compensating balances and a sweep account are not requirements, but could be a potential component of improved efficiencies to be considered.
that of compensating balances held at correspondent banks by respondent
Early in the year, demand deposits surged as lower rates required businesses to build up compensating balances and as mortgage servicers held larger balances during the mortgage refinancing boom.
According to data from an annual survey by the Japan Fair Trade Commission, the reliance on these compensating balances for loans to small businesses declined steadily throughout the 1980s, from 45 percent of surveyed loan contracts in 1980 to 26 percent in 1990.
Even on a fourth-quarter-average to fourth-quarter-average basis, demand deposits increased at a sluggish 3 1/2 percent rate, likely because corporations continued to shift away from compensating balances, and toward fees, to pay for bank services.