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Published On: Tue, Feb 5th, 2013

Commercial Paper

Commercial Paper is a form of short term debt that is issued without collateral.  It is usually used as short term financing for highly credit worthy corporations.

Commercial paper can be issued by companies in any industry but it is mostly used in by finance companies such as banks, etc. Commercial Paper usually has a maturation date of less than 270 days.  Because of the ultra short timeframe, buyers of Commercial Paper are willing to lend without collateral.  Commercial paper is usually issued at a discount, meaning that a the issuer will receive less than the face value of the Paper at sale, yet pay the full face value of the Paper at the retirement of the paper.  For example a note that has a face value of $1,000 could be sold at $975, and be paid off at $1,000. The difference would represent the $25 interest paid on the Commercial Paper.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

 

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