What does commercial paper mean?

Commercial paper, also called CP, is a short-term debt instrument issued by companies to raise funds generally for a time period up to one year. They are typically issued by large banks or corporations to cover short-term receivables and meet short-term financial obligations, such as funding for a new project.

What are the four types of commercial paper?

There are four types of commercial paper: drafts, checks, notes, and certificates of deposit.

What kind of firm uses commercial paper?

Commercial paper is issued by a wide variety of domestic and foreign firms, including financial companies, banks, and industrial firms. Major investors in commercial paper include money market mutual funds and commercial bank trust departments.

Who can buy commercial paper?

13. Who can invest in CP? Individuals, banking companies, other corporate bodies (registered or incorporated in India) and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) etc. can invest in CPs.

What are the disadvantages of commercial paper?

Disadvantages of commercial papers:

  • It is available only to a few selected blue chip and profitable companies.
  • By issuing commercial paper, the credit available from the banks may get reduced.
  • Issue of commercial paper is very closely regulated by the RBI guidelines. Next Page »

Is commercial paper negotiable?

One of the most significant aspects of commercial paper is that it is negotiable, which means that it can be freely transferred from one party to another, either through endorsement or delivery. The terms commercial paper and negotiable instrument can be used interchangeably.

Is commercial paper safe?

Broadly speaking, commercial paper is considered to be a fairly low-risk investment because of the extremely short-term nature of the securities. Investors who enjoy the safety and security that FDIC insurance provides should remember that commercial paper investments are different than bank deposits.

What is the advantage of commercial paper?

Advantages of Commercial Paper Contributes Funds – It contributes extra funds as the cost of the paper to the issuing company is cheaper than the loans of the commercial bank. Flexible – It has a high liquidity value and flexible maturity range giving it extra flexibility.

What are the benefits of commercial papers?

Merits of Commercial Paper

  • Technically, it provides more funds compared to other sources.
  • It is in freely transferable nature, therefore it has high liquidity also a wide range of maturity provide more flexibility.
  • A commercial paper is highly secure and does not contain any restrictive condition.

What is the minimum amount at which commercial paper can be issued?

Rs. 5 lakh
At present, CP can be issued in denominations of Rs. 5 lakh or multiple thereof and the amount invested by a single investor should not be less than Rs. 5 lakh (face value).

Which is the best definition of commercial paper?

What is ‘Commercial Paper’. Commercial paper is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts payable and inventories, and meeting short-term liabilities.

Where can I find information about commercial paper?

For more information on commercial paper, contact your financial advisor or visit the Federal Reserve Board website. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.

Who is the holder of a commercial paper?

A holder is an individual who is in possession of an instrument that is either payable to him or her as the payee, endorsed to him or her, or payable to the bearer. Those who obtain instruments after the payee are holders if such instrument is either payable to the bearer or endorsed properly to their order.

What is the maturity date of commercial paper?

Short-term promissory notes either unsecured or backed by assets such as loans or mortgages issued by a corporation. The maturity of commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.