Define: Commercial Paper

Commercial paper refers to a short-term debt instrument issued by corporations, financial institutions, and government entities to meet their immediate funding needs.

Commercial paper is typically issued at a discount to its face value and matures within a period of 270 days or less. Investors purchase the commercial paper and earn a return when it matures at its face value.

Commercial paper can be issued by corporations, financial institutions, and government entities that have a high credit rating and a strong financial position.

Investing in commercial paper offers several benefits, including higher returns compared to traditional savings accounts, short-term investment options, and relatively low risk when investing in highly-rated issuers.

While commercial paper is generally considered a low-risk investment, there is still a risk of default if the issuer faces financial difficulties. Investors should carefully evaluate the creditworthiness of the issuer before investing.

Commercial paper is regulated by the Securities and Exchange Commission (SEC) in the United States. The SEC ensures that issuers comply with disclosure requirements and provides oversight to protect investors.

Yes, commercial paper can be traded in the secondary market before its maturity date. However, the secondary market for commercial paper is less liquid compared to other fixed-income securities.

Commercial paper is a short-term debt instrument with a maturity of 270 days or less, while corporate bonds have longer maturities. Additionally, commercial paper is typically issued at a discount, while corporate bonds pay periodic interest.

Individual investors can invest in commercial paper through money market funds or by directly purchasing it from a broker-dealer. However, it is important to conduct thorough research and consider the creditworthiness of the issuer before investing.