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CA Intermediate · Financial Management and Strategic Management · Types of Financing

Which of the following statements about commercial paper (CP) in India is correct?

Commercial paper is an unsecured, negotiable, short-term money market instrument issued at a discount to face value and redeemed at par. Strongly rated corporates use it to raise short-term funds without pledging assets, so it is not a long-term or secured instrument.

  1. AIt is a secured, long-term instrument issued only by banks
  2. BIt is an unsecured, negotiable short-term money market instrument issued at a discount to face valueCorrect
  3. CIt carries a fixed coupon and is redeemed after ten years
  4. DIt can be issued only to individuals and not to companies

Explanation

CP is an unsecured promissory note issued at a discount and redeemed at face value, for short-term funding by creditworthy corporates. It is not long-term, not secured by assets, and is not a coupon-bearing ten-year instrument.

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