Which best describes commercial paper?

Which best describes commercial paper?

• A. A long-term debt security
• B. A short-term unsecured promissory note
• C. A type of insurance product
• D. A real estate investment

Answer: (B)

Commercial paper is best described as a short-term unsecured promissory note. It is a financial instrument issued by corporations to raise funds for a variety of short-term needs, such as inventory purchases or meeting operational expenses. Typically, commercial paper has maturities that range from a few days up to 270 days. Because it is unsecured, it is typically issued by firms with high credit ratings and reflects the issuer's promise to pay back the borrowed amount on a specified maturity date. This distinguishes it from long-term debt securities, which are intended for financing longer-term investments. Unlike insurance products, which provide coverage against potential losses, or real estate investments, which involve purchasing properties for income or capital appreciation, commercial paper serves a specific need for quick, short-term financing in corporate finance.

Commercial paper is best described as a short-term unsecured promissory note. It is a financial instrument issued by corporations to raise funds for a variety of short-term needs, such as inventory purchases or meeting operational expenses. Typically, commercial paper has maturities that range from a few days up to 270 days. Because it is unsecured, it is typically issued by firms with high credit ratings and reflects the issuer's promise to pay back the borrowed amount on a specified maturity date.

This distinguishes it from long-term debt securities, which are intended for financing longer-term investments. Unlike insurance products, which provide coverage against potential losses, or real estate investments, which involve purchasing properties for income or capital appreciation, commercial paper serves a specific need for quick, short-term financing in corporate finance.