This is an unsecured, short-term money market debt instrument issued by a corporation, typically for the financing of accounts payable and inventories and meeting short-term liabilities. Maturities on commercial paper rarely range longer than 270 days.
Benefits of Investing in Commercial Papers
- Can be traded in the secondary market
- Issued within the range of rates obtainable in the money market
- Equivalent to cash as they are liquid and not subject to material fluctuations in value
- Backed only by an issuing bank or company promise to pay the face amount and accrued interest on the maturity date specified on the promissory note.
- Usually yields higher returns than other fixed income instruments.
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