Define each of the following terms: g. Transactions balances; compensating balances; precautionary balances

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Define each of the following terms: g. Transactions balances; compensating balances; precautionary balances

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Define each of the following terms:
g. Transactions balances; compensating balances; precautionary balances

Explanation & AnswerSolution by a verified expert

Verified Answer

Transaction balances - It is the amount of cash balance that is needed to carry out routine transactions of a business.
Compensating balances - It is the minimum balance that a bank needs as compensation for the services rendered.
Precautionary balances - It is the amount of cash balance held in reserve for settling unpredicted and sudden happenings in the business activities.

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