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Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue.
A major benefit of commercial paper is that it does not need to be registered with the Securities and Exchange Commission (SEC) as long as it matures before nine months (270 days), making it a very cost-effective means of financing. The proceeds from this type of financing can only be used on current assets (inventories) and are not allowed to be used on fixed assets, such as a new plant, without SEC involvement.
Commercial Paper in India is a new addition to short-term instruments in Indian Money market since1990 onward. The introduction of Commercial paper as the short-term monetary instrument was the beginning of a reform in Indian Money market on the background of trend of Liberalization which began in the world economy during1985 to1990. A commercial paper in India is the monetary instrument issued in the form of promissory note. It acts as the debt instrument to be used by large corporate companies for borrowing short-term monetary funds in the money market. An introduction of Commercial Paper in Indian money market is an innovation in the Financial system of India. Prior to injection of Commercial Paper in Indian money market i.e. before1990, the corporate companies had to depend upon the crude and traditional method of borrowing working capital from the commercial banks by pledging the inventory of raw materials as Collateral security. It involved more loss of time for the borrowing companies in availing the short-term funds for day-to-day production activities. The commercial paper has become effective instrument for these corporate companies to avail the short-term funds from the money market within shortest possible time limit by avoiding the hassles of direct negotiation with the commercial banks for availing the short-term loans.
An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates.
commercial paper is short-term loan issued by corporation.it is used for meeting the short term liabilities..it is issued at a discount reflecting current market interest rate..maturities on commercial paper are usually no longer than9 months.
Commercial Paper is an unsecured money market instrument issues in the form of promissory note,Tenure is in between one to270 days in india.
