CFA Level I · CFA Level I Exam · Fixed-Income Markets for Corporate Issuers
A corporate treasurer wants to borrow for six months to cover a seasonal inventory build. The firm wants the lowest-cost, most flexible funding, and it has a strong credit rating. Which market segment is the firm most likely to use?
The commercial paper market is most appropriate. It provides short-term, unsecured, low-cost funding for strongly rated issuers, matching a six-month seasonal need. Long-term public bonds or 10-year private placements would be mismatched in tenor and costlier to issue.
- ACommercial paper marketCorrect
- BLong-term corporate bond market
- CPrivate placement of 10-year notes
Explanation
Commercial paper is short-term, unsecured, discount-based funding available to highly rated issuers at low cost. Long-term bonds and 10-year private placements are poorly matched to a six-month need and carry higher issuance costs and longer commitments.
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