Question

A prearranged credit agreement with a bank typically open for two or more years is called...

A prearranged credit agreement with a bank typically open for two or more years is called a

A. letter of credit. B. revolving credit arrangement. C. compensating balance. D. factored loan. E. cleanup loan.

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Answer #1

B. revolving credit arrangement

Revolving credit is a line of credit provided by banks where the customer is allowed to use the funds when needed by paying a commitment fee. It usually is used for operating purposes and the amount drawn can fluctuate each month depending on the customer's financial needs. Revolving credit can be taken by corporations or individuals.

Letter of credit is a letter issued by a bank to another bank to serve as a guarantee for payments made to a person in another place by the person who is the customer of the bank under specified conditions.

A compensating balance is a minimum balance that must be maintained in a bank account

Factored loan is a financial transaction where a business sells its accounts receivable

A cleanup clause is a contractual provision in a loan agreement which provides that all outstanding loans must be repaid within a specified period,

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