Money Market: Commercial Paper
AAA
  1. Money Market: Introduction
  2. Money Market: What Is It?
  3. Money Market: Treasury Bills (T-Bills)
  4. Money Market: Certificate Of Deposit (CD)
  5. Money Market: Commercial Paper
  6. Money Market: Banker's Acceptance
  7. Money Market: Eurodollars
  8. Money Market: Repos
  9. Money Market: Conclusion

Money Market: Commercial Paper

For many corporations, borrowing short-term money from banks is often a laborious and annoying task. The desire to avoid banks as much as possible has led to the widespread popularity of commercial paper. (See Why do companies issue bonds instead of borrowing from the bank?)

Commercial paper is an unsecured, short-term loan issued by a corporation, typically for financing accounts receivable and inventories. It is usually issued at a discount, reflecting current market interest rates. Maturities on commercial paper are usually no longer than nine months, with maturities of between one and two months being the average.

For the most part, commercial paper is a very safe investment because the financial situation of a company can easily be predicted over a few months. Furthermore, typically only companies with high credit ratings and credit worthiness issue commercial paper. Over the past 40 years, there have only been a handful of cases where corporations have defaulted on their commercial paper repayment.

Commercial paper is usually issued in denominations of $100,000 or more. Therefore, smaller investors can only invest in commercial paper indirectly through money market funds.

Money Market: Banker's Acceptance

  1. Money Market: Introduction
  2. Money Market: What Is It?
  3. Money Market: Treasury Bills (T-Bills)
  4. Money Market: Certificate Of Deposit (CD)
  5. Money Market: Commercial Paper
  6. Money Market: Banker's Acceptance
  7. Money Market: Eurodollars
  8. Money Market: Repos
  9. Money Market: Conclusion
RELATED TERMS
  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Bulldog Market

    A nickname for the foreign bond market of the United Kingdom. ...
  3. Bid Wanted

    An announcement by an investor who holds a security that he or ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt ...
  5. Float Shrink

    A reduction in the number of a publicly traded company’s shares ...
  6. Capital Strike

    A refusal of businesses to invest in a particular sector of the ...
  1. What factors determine the strength of the crowding out effect?

    Learn about the four main factors that influence the strength of the crowding-out effect, which occurs when government spending ...
  2. What is the difference between residual income and savings?

    Discover the differences between various forms of income and their functions, including residual, disposable and discretionary ...
  3. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Find out more about book value of equity per share, what BVPS measures and how to determine what level of BVPS indicates ...
  4. What is the effective interest method of amortization?

    Find out more about the effective interest rate method and how the effective interest method is used to amortize a discounted ...

You May Also Like

Related Tutorials
  1. Fundamental Analysis

    Ethical Investing Tutorial

  2. Bonds & Fixed Income

    Investing For Safety and Income Tutorial

  3. Economics

    American Depositary Receipt Basics

  4. Bonds & Fixed Income

    Certificates Of Deposit

  5. Investing Basics

    Stock Basics Tutorial

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!