Business, Legal & Accounting Glossary
short-term unsecured promissory notes issued by companies.
Commercial paper is a debt instrument issued by well-established companies to meet short-term financing needs. Commercial paper calls for the payment of money at a specified date, usually within two to 270 days. Issuers tend to issue commercial paper to help manage short-term cash flow at a low cost since commercial paper is usually sold at a discount. Investors consider moving their investment dollars into commercial paper when they are looking to park idle cash in a safe and liquid investment vehicle. Commercial paper tends to be a very low-risk investment since it is issued by companies with high credit ratings and is backed by bank lines of credit. The low risk that commercial paper provides comes at a price – low yields.
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This glossary post was last updated: 4th February, 2020