Commercial Paper

Commercial paper is a form of short-term borrowing used by large corporations to finance their immediate operational needs, such as payroll, inventory, and accounts payable. These debt instruments typically have maturities ranging from a few days to 270 days and are issued at a discount to face value. Since commercial paper is unsecured, it relies on the issuer's creditworthiness, making it suitable primarily for financially sound companies.

Investors in commercial paper include money market funds, institutional investors, and corporations seeking short-term investments with higher yields than government securities. Commercial paper is a crucial component of the money market, providing companies with a flexible and cost-effective way to manage short-term liquidity needs.

1. A large corporation issuing commercial paper to finance seasonal inventory purchases.
2. An investment firm purchasing commercial paper as part of its money market fund portfolio.
3. A company using proceeds from commercial paper issuance to cover short-term operational expenses.