commercial paper

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commercial paper

A company issues commercial paper to raise short-term funds.

Definition

Noun: 1. A short-term, unsecured debt instrument: Commercial paper is a type of promissory note issued by large, creditworthy corporations or financial institutions to raise funds for short-term needs, such as inventory or accounts receivable. It is typically sold at a discount to its face value and matures within 270 days or less.

Usage

Commercial paper is a key instrument in the money markets, used by companies as an alternative to bank loans. It is considered a low-risk investment due to the high credit quality of its issuers. - The corporation issued commercial paper to finance its seasonal working capital requirements. - Money market funds often invest in high-grade commercial paper to maintain liquidity and earn a return.

Advanced Usage
  • "to roll over commercial paper": This refers to the practice of issuing new commercial paper to repay maturing paper, effectively extending the short-term loan.
    • The company plans to roll over its commercial paper rather than seek a long-term bank loan.
Variants and Related Words
  • Promissory Note (n): A broader term for a financial instrument containing a written promise by one party to pay another party a definite sum of money. Commercial paper is a specific, standardized type of promissory note.
  • Certificate of Deposit (CD) (n): A time deposit offered by banks. Unlike commercial paper, a CD is issued by a bank and is often insured.
  • Treasury Bill (T-Bill) (n): A short-term government security. T-Bills are considered virtually risk-free, while commercial paper carries a slightly higher risk (and potentially higher return).
Synonyms
  • Corporate IOU (n): (Informal) Emphasizes its nature as a debt obligation from a company.
  • Short-term note (n): A descriptive synonym highlighting its maturity period.
Related Phrases
  • Commercial paper market (n): The financial market where commercial paper is issued and traded.
    • Liquidity in the commercial paper market dried up during the financial crisis.
  • Prime commercial paper (n): Commercial paper issued by the most creditworthy companies, carrying the highest credit rating.
    • The pension fund's policy restricts investments to prime commercial paper.
commercial paper

A company issues commercial paper to raise short-term funds.

Noun
  1. an unsecured and unregistered short-term obligation issued by an institutional borrower to investors who have temporarily idle cash