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.

Noun

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