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Encyclopedia > Commercial paper
Financial markets

Bond market
Fixed income
Corporate bond
Government bond
Municipal bond
Bond valuation
High-yield debt
This article does not cite any references or sources. ... Download high resolution version (480x640, 110 KB)Blockade in front of NYSE. Picture taken in April 2004. ... The bond market, also known as the debit, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. ... This article does not cite any references or sources. ... A corporate bond is a bond issued by a corporation. ... A government bond is a bond issued by a national government denominated in the countrys own currency. ... In the United States, a municipal bond or muni is a bond issued by a state, city or other local government, or their agencies. ... Bond valuation is the process of determining the fair price of a bond. ... In finance, a high yield bond (non-investment grade bond, speculative grade bond or junk bond) is a bond that is rated below investment grade at the time of purchase. ...

Stock market
Stock
Preferred stock
Common stock
Stock exchange
A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. ... For other uses, see Stock (disambiguation). ... A preferred stock, also known as a preferred share or simply a preferred, is a share of stock carrying additional rights above and beyond those conferred by common stock. ... Common stock, also referred to as common shares, are, as the name implies, the most usual and commonly held form of stock in a corporation. ...

Foreign exchange market
Retail forex
The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. ... The Retail forex (Retail Currency Trading or Retail Forex or Retail FX) market is a subset of the larger Foreign exchange market. ...

Derivative market
Credit derivative
Hybrid security
Options
Futures
Forwards
Swaps
A derivatives market is any market for a derivative security, that is a contract which specifies the right or obligation to receive or deliver future cash flows based on some future event such as the price of an independent security or the performance of an index. ... // A credit derivative is a financial instrument or derivative (finance) whose price and value derives from the creditworthiness of the obligations of a third party, which is isolated and traded. ... Definition A hybrid security, as the name implies, is a security that combines two or more different financial instruments. ... In finance options are types of derivative contracts, including call options and put options, where the future payoffs to the buyer and seller of the contract are determined by the price of another security, such as a common stock. ... In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. ... This article does not cite any references or sources. ... For the Thoroughbred horse racing champion, see: Swaps (horse). ...

Other Markets
Commodity market
OTC market
Real estate market
Spot market
Chicago Board of Trade Futures market Commodity markets are markets where raw or primary products are exchanged. ... Over-the-counter (OTC) trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ... Template:The Spot Market The Spot Market or Cash Marketis a commodities or securities market in which goods are sold for cash and delivered immediately. ...


Finance series
Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation
Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ... This article does not cite any references or sources. ... There are two basic financial market participant catagories, Investor vs. ... Domestic credit to private sector in 2005 Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ... Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. ... This article does not cite any references or sources. ... For other uses, see Bank (disambiguation). ... Financial supervision is government supervision of financial institutions by regulators. ...

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Commercial paper is a money market security issued by large banks and corporations. It is generally not used to finance long-term investments but rather to purchase inventory or to manage working capital. It is commonly bought by money funds (the issuing amounts are often too high for individual investors), and is generally regarded as a very safe investment. As a relatively low risk option, commercial paper returns are not large. There are four basic kinds of commercial paper: promissory notes, drafts, checks, and certificates of deposit. This article is about short-term financing. ... For security (collateral), the legal right given to a creditor by a borrower, see security interest A security is a fungible, negotiable instrument representing financial value. ... For other uses, see Bank (disambiguation). ... For other uses, see Corporation (disambiguation). ... Domestic credit to private sector in 2005 Working capital (also known as net working capital) is a financial metric which represents the amount of day-by-day operating liquidity available to a business. ... Money funds (or money market funds, money market mutual funds) are mutual funds that invest in short-term debt instruments. ... A promissory note is a contract detailing the terms of a promise by one party (the maker) to pay a sum of money to the other (the payee). ... A certificate of deposit or CD is, in the United States, a time deposit, a familiar financial product, commonly offered to consumers by banks, thrift institutions, and credit unions. ...


Because commercial paper maturities do not exceed nine months and proceeds typically are used only for current transactions, the notes are exempt from registration as securities with the United States Securities and Exchange Commission. SEC redirects here. ...


Commercial paper is defined in Canada as having a maturity of not more than one year and is exempt from dealer registration and prospectus requirements.[1]


Commercial paper essentially can be compared as an alternative to lines of credit with a bank. Once a business becomes large enough, and maintains a high enough credit rating, then using commercial paper is always cheaper than using a bank line of credit. Nevertheless, many companies still maintain bank lines of credit to act as a "backup" to the commercial paper. In this situation, banks often charge fees for the amount of the line of the credit that does not have a balance. While these fees may seem like pure profit for banks, if the company ever actually needs to use the line of credit it would likely be in serious trouble and have difficulty repaying its liabilities.


Currently, more than 1,700 companies in the United States issue commercial paper. Financial companies comprise the largest group of commercial paper issuers, accounting for nearly 75 percent of the commercial paper outstanding at mid-year 1990. Financial-company paper is issued by firms in commercial, savings and mortgage banking; sales, personal and mortgage financing; factoring; finance leasing and other business lending; insurance underwriting; and other investment activities. The remaining commercial paper outstanding at mid-year 1990 -- over 25 percent -- was issued by nonfinancial firms such as manufacturers, public utilities, industrial concerns and service industries.


Commercial paper was invented by Percy "Max" Hall, Vice President of Manufacturers Hanover Trust Bank, in the 1920's.


Issuing commercial paper

There are two methods of issuing paper. The issuer can market the securities directly to a buy and hold investor such as most money funds. Alternatively, it can sell the paper to a dealer, who then sells the paper in the market. The dealer market for commercial paper involves large securities firms and subsidiaries of bank holding companies. Most of these firms also are dealers in US Treasury securities. Direct issuers of commercial paper usually are financial companies that have frequent and sizable borrowing needs and find it more economical to sell paper without the use of an intermediary. In the United States, direct issuers save a dealer fee of approximately 5 basis points, or 0.05% annualized, which translates to $50,000 on every $100 million outstanding. This saving compensates for the cost of maintaining a permanent sales staff to market the paper. Dealer fees tend to be lower outside the United States. Buy and hold is a long term investment strategy based on the concept that in the long run financial markets give a good rate of return despite periods of volatility or decline. ... For security (collateral), the legal right given to a creditor by a borrower, see security interest A security is a fungible, negotiable instrument representing financial value. ... For other uses, see Bank (disambiguation). ... Treasury securities are government bonds issued by the United States Department of the Treasury through the Bureau of the Public Debt. ...


Notes and References

  1. ^ Ontario Securities Commission National Instrument 45-106 (Section 2.35) Accessed 2007-01-30

External links


  Results from FactBites:
 
commercial paper: Definition and Much More from Answers.com (6475 words)
Commercial paper is, in effect, a promissory note of the issuer used to finance current obligations, and is a Negotiable Instrument as defined by the Uniform Commercial Code.
Commercial paper is ordinarily used in business transactions, since it is a reliable and expedient means of dealing with large sums of money and minimizes the risks inherent in using cash, such as the increased possibility of theft.
Commercial paper is a specific type of property primarily governed by article 3 of the Uniform Commercial Code (UCC), which is in effect in all fifty states, the District of Columbia, and the Virgin Islands.
Commercial Paper (1482 words)
Commercial paper is typically a discount security (like Treasury bills): the investor purchases notes at less than face value and receives the face value at maturity.
Commercial banks, in their role as issuing, paying, and clearing agents, facilitate the settling of commercial paper by carrying out the exchanges between issuer, investor, and dealer required to transfer commercial paper for funds.
Commercial paper is used by Industrial and service companies to finance working capital (accounts receivable and inventory) on a permanent or seasonal basis, to fund operating expenses, and to finance, on a temporary basis, construction projects.
  More results at FactBites »

 
 

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