What are its advantages and limitations? Answer: Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days. … The CP can be issued only by firms having good credit rating as this debt is totally unsecured.
Moreover, are commercial papers safe?
A commercial paper refers to a short-term, unsecured debt obligation that is issued by financial institutions and large corporations. … Also, it is generally sold at a discount to its face value due to the somewhat risky nature of the unsecured security.
People also ask, what are the limitation of commercial paper?
Limitations of Commercial Paper
The amount of money that we can raise through commercial paper is limited to the deductible liquidity available with the suppliers of funds at a particular time. Commercial paper is an odd method of financing.
What are the pros and cons of commercial paper?
1) It is quick and cost effective way of raising working capital. 3) It provides the exit option to the investors to quit the investment. 4) They are cheaper than a bank loan. 5) As commercial papers are required to be rated, good rating reduces the cost of capital for the company.
What do u mean by commercial paper?
Commercial paper, also called CP, is a short-term debt instrument issued by companies to raise funds generally for a time period up to one year. … They are typically issued by large banks or corporations to cover short-term receivables and meet short-term financial obligations, such as funding for a new project.