Money Market: Commercial Paper
  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
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  4. Fine Paper

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  5. Short-Term Paper

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RELATED FAQS
  1. How can retail investors invest in commercial paper?

    Find out how individual retail investors can purchase short-term commercial paper, but why it rarely makes good investment ... Read Answer >>
  2. Can a business ever be too small to issue commercial paper?

    See why market forces regulate the size of companies that issue commercial paper, even though there are no official regulations ... Read Answer >>
  3. Can retail investors buy commercial paper?

    Find out whether retail investors buy commercial paper, and learn about the restrictions that often prevent individual investors ... Read Answer >>
  4. What happens when a company defaults on its commercial paper obligations?

    Read about the possible consequences of a large corporation defaulting on its commercial paper obligations even though the ... Read Answer >>
  5. What are some examples of securities that can be found in a money market fund?

    Learn about examples of securities found in money market accounts. These securities need to be safe, liquid and of short-term ... Read Answer >>
  6. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>

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