Which one is correct for commercial paper?
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. It is an unsecured money market instrument issued in the form of a promissory note and was introduced in India for the first time in 1990.
CP may be issued to and held by individuals, banking companies, other corporate bodies registered or incorporated in India and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs).
Types of commercial paper
There are two main ways that commercial paper is issued. Issuers can sell securities to investors directly, or to a dealer. The main types of commercial paper are notes, drafts, checks, and certificates of deposit.
Commercial paper is an unsecured form of promissory note that pays a fixed rate of interest. It is 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.
Commercial paper is an unsecured, short term debt instrument issued by a corporation, typically for the financing of account receivable, inventories ad meeting short term liabilities. They are generally issued at a price less than face value. Was this answer helpful?
There are four types of commercial paper: drafts, checks, notes, and certificates of deposit.
Companies, Primary Dealers (PDs) and Finance Institution (FIs) are eligible to issue commercial paper. Commercial Paper (CPs) can be issued based on the guidelines set by RBI.
Individuals, non-resident Indians, banks, companies and foreign institutional investors (FII) can invest in CPs. They are available either in physical or dematerialized form. You need at least ₹ 5 lakh to invest in them. Of course if you are a retail investor, a high entry barrier may dissuade you from investing in it.
CDs can be issued in India for a minimum deposit of ₹1 lakh and in subsequent multiples of it. Scheduled Commercial Banks (SCBs) and All-India Financial Institutions are eligible to issue a CD. Cooperative Banks and RRBs cannot issue a CD. CDs issued by SCBs have in term period anywhere between 3 months to a year.
Commercial paper is a short-term unsecured promissory. note. The issuer of the note promises to pay its holder a specified amount on a specified maturity date.
What is the minimum amount of commercial paper?
At present, CP can be issued in denominations of Rs. 5 lakh or multiple thereof and amount invested by a single investor should not be less than Rs. 5 lakh (face value). Internationally, in USA, there is no required minimum size of issue.
Commercial paper (CP) is unsecured, short-term debt issued for a specified amount to be paid at a specified date.
Commercial paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities.
A new operational guideline on commercial paper (CP) announced by the Fixed Income Money Market and Derivatives Association of India (Fimmda) has made the appointment of an issuing and paying agency (IPA) mandatory for any fresh CP issue. The appointment of an IPA was optional earlier.
A paper dealer is typically a large financial firm that has the capital and level of sophistication necessary to distribute commercial paper to investors on behalf of borrowing corporations and to make a two-sided market in commercial paper, setting prices at which it is willing to buy (bids) and sell (offers).
The following statement is correct: a. Commercial paper is a form of short-term financing that a primarily used by large strong financially stable companies.
Commercial paper is often referred to as an unsecured promissory note, as the security is not supported by anything other than the issuer's promise to repay the face value at the maturity date specified on the note.
Answer» a. The minimum amount for Commercial Papers is 5 lakhs.
At present, CP can be issued in denominations of Rs. 5 lakh or multiple thereof and amount invested by a single investor should not be less than Rs. 5 lakh (face value). Internationally, in USA, there is no required minimum size of issue.
| Q. | Which of the following statements is not true with regard to Commercial paper? |
|---|---|
| B. | It usually has a maturity period of 15 days to one year. |
| C. | It is sold at a discount and redeemed at par. |
| D. | Companies use this instrument for bridge financing. |
| Answer» a. Is a long-term unsecured promissory note with a fixed maturity period. | |
Which of the following is a characteristic of commercial paper?
It is a short-term money market tool, including a promissory note and a set maturity. It acts as an evidence certificate of unsecured debt. It is subscribed at a discount rate and can be issued in an interest-bearing application.
Retained Earnings (profit) and Borrowed Funds.
