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CS Professional · Strategic Management and Corporate Finance · Sources of Corporate Funding

Which statement about commercial paper (CP) issued by an Indian company is correct under the RBI framework?

Commercial paper is an unsecured, negotiable money market instrument issued at a discount and redeemed at face value. It is short term, issued by eligible corporates and others, and is not backed by a charge on assets, which distinguishes it from secured debentures.

  1. AIt is a secured, long-term debenture with a fixed charge on assets
  2. BIt is an unsecured, negotiable money market instrument issued at a discount to face valueCorrect
  3. CIt can be issued only by banks and never by corporates
  4. DIt is issued only to retail investors, never to institutions

Explanation

CP is an unsecured money market instrument, usually issued in dematerialised form at a discount and redeemed at face value. It is short term, not a secured long-term debenture, and eligible corporates can issue it, with institutional investors being major subscribers.

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