In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of 1 to 271 days. Commercial paper is a money-market security issued (sold) by large corporations to get money to meet short term debt obligations (for example, payroll), and is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note. Since it is not backed by collateral, only firms with excellent credit ratings from a recognized rating agency will be able to sell their commercial paper at a reasonable price. Commercial paper is usually sold at a discount from face value, and carries higher interest repayment rates than bonds. Typically, the longer the maturity on a note, the higher the interest rate the issuing institution must pay. Interest rates fluctuate with market conditions, but are typically lower than banks' rates.
Read more about Commercial Paper: Overview, History, Issuance, Line of Credit, Commercial Paper Yields, Defaults
Famous quotes containing the words commercial and/or paper:
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—Samuel Johnson (1709–1784)