CA Intermediate · Financial Management and Strategic Management · Financing of Working Capital
Which of the following is a form of short-term financing where the issuer sells unsecured, discounted promissory notes of a fixed maturity of 7 to 365 days, usually issued by highly rated corporates?
Commercial paper is correct. It is an unsecured, discounted promissory note issued by highly rated corporates to raise short-term funds, with maturity between 7 and 365 days. Debentures, preference shares and term loans are long-term sources and are not short-term money market instruments.
- ACommercial paperCorrect
- BDebenture
- CPreference share
- DTerm loan
Explanation
Commercial paper is an unsecured money market instrument issued at a discount by creditworthy companies for short maturities. Debentures, preference shares and term loans are longer-term sources of finance, so they do not fit a 7 to 365 day maturity.
Did you get it right without looking?
One question tells you little. A timed set on Financing of Working Capital shows your real accuracy, how long you take and where you lose marks.
More Financing of Working Capital questions
- The projected figures of Sundaram Engineering for the next year are: total current assets ₹600 lakh; current liabilities other than bank bor…
- Kaveri Industries issues 90-day commercial paper of face value ₹100 lakh at a discount, so that the issue price is ₹97.50 lakh. Ignoring iss…
- Verma Industries has a cash credit limit of ₹50 lakh. During the year its average utilisation was ₹32 lakh. The bank charges interest at 10%…
- Mehta Industries has annual credit sales of Rs 7.2 crore (360 days). A factor will advance 80% of receivables, charging 12% p.a. interest on…
- Sharma Traders has current assets of ₹40,00,000 and current liabilities other than bank borrowings of ₹10,00,000. Under Tandon Committee Met…
- Which statement about commercial paper (CP) in India is correct?