Commercial Paper – Its Types and How it Works
Commercial paper refers to a short-term, unsecured promissory note. This type of debt obligation is issued by high credit ratings holders like financial institutions and large corporations as an alternative to other expensive methods of funding. Although there are several restrictions for small retail investors to purchase commercial paper, it is still possible to some extent. Commercial paper is usually sold at a discount to its face value. It works as the best option for retail fixed-income investors who are seeking a higher rate of return on their money. It is typically issued for the financing of inventories, accounts payable, payroll, and meeting other short-term liabilities. Commercial paper has a fixed maturity of up to 270 days in the global financial market. Commercial paper usually pays a higher rate of interest than guaranteed instruments Most of the commercial paper investors are from the banking sector, corporate and incorporated companies, individuals, and Foreign Instit...