(b) The requirement is to identify the term used to describe
a required minimum checking account balance. Answer
(b) is correct because a compensating balance is a minimum
balance required by the bank to compensate the bank for services.
Answer (a) is incorrect because transactions balance is the
amount of funds the firm needs on deposit to conduct day-to-day
transactions. Answer (c) is incorrect because this precautionary
balance represents the balance available for emergencies. Answer
(d) is incorrect because this speculative balance represents
the balance available for bargain purchases.