Banking Term: Commercial Papers

Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.  Primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP. The corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP.

CP can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue. However, the maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid.

Question

Commercial paper is essentially

A. Another term for a junk bond.

B. A short-term unsecured corporate IOU.

C. An intermediate-term corporate bond.

D. A certificate that may be exchanged for a share of common stock at a specified future date.

E. None of these

Answer: D