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Financing foreign operations - effective percentage cost

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Apex Supplies borrows £1 million at 12 percent, payable in one year. If Apex is required to maintain a compensating balance of 20 percent, what is the effective percentage cost of its loan (in pounds)?

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Solution Summary

The solution explains how to calculate the effective percenatge cost with compensating balance

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Compensating Balances are non-interest-bearing demand deposits maintained by a firm to compensate a bank for services provided, credit lines, or ...

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