CA Foundation · Business Economics · Money Market
Meera Textiles needs short-term funds for 60 days and has a well-rated, unsecured promissory note it wants to sell to investors directly, without a bank guarantee. Which money market instrument is best suited to this purpose?
Commercial paper is the best fit. It is an unsecured short-term promissory note that creditworthy companies issue at a discount to raise working capital directly from investors. Certificates of deposit are issued only by banks, and the other options are government securities.
- ACommercial paperCorrect
- BCertificate of deposit
- CGovernment dated security
- DCash management bill
Explanation
Commercial paper is an unsecured, short-term promissory note issued at a discount by highly rated corporates to raise working capital. Certificates of deposit are issued by banks and financial institutions, not by a textile firm. Government dated securities and cash management bills are government instruments.
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