CFA Level I · CFA Level I Exam · Fixed-Income Issuance and Trading
A corporate treasurer needs short-term funding of three months and wants to borrow in the wholesale market without pledging specific assets, relying on the firm's credit standing. The instrument that is most appropriate is:
Commercial paper is the most appropriate choice. It is short-term, unsecured debt sold to wholesale investors and backed by the issuer's credit quality. A repo requires pledged securities as collateral, and a five-year medium-term note has a maturity far longer than the three-month funding need.
- Acommercial paperCorrect
- Ba repurchase agreement
- Ca medium-term note with a five-year maturity
Explanation
Commercial paper is short-term unsecured wholesale funding issued on the issuer's credit standing, typically maturing within a year. A repurchase agreement requires collateral in the form of securities. A five-year medium-term note does not fit a three-month need.
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