Difference between revisions of "Commercial paper"

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Commercial paper consists of high-denomination, short-term unsecured debt instruments issued by corporations  and traded directly on the [[money market]] without involving the [[SEC]]. Generally considered safe and low-yielding, the recent global [[credit crisis]] has significantly pushed up the price of [[cash]] for some commercial-paper issuers.


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Commercial paper must mature within 270 days but averages around 30 days, and because it is usually offered at a discount to prevailing interest rate it's considered a cheaper alternative to bank financing. The U.S. [[Federal Reserve]] publishes one-month, two-month and three-month rates on AA financial and AA non-financial commerical-paper rates in weekly statistical releases.<ref>{{cite web|url=http://www.federalreserve.gov/releases/CP/about.htm|name=About Commercial Paper|org=U.S. Federal Reserve|date=September 30, 2008}}</ref> Because commerical paper is usually not issued in denominations below $100,000, retail investors typically gain exposure indirectly though money-market funds or money-market deposit accounts.<ref>{{cite web|url=http://www.investopedia.com/university/moneymarket/moneymarket4.asp|name=Money Market: Commercial Paper|org=Investopedia - Forbes Digital|date=September 30, 2008}}</ref>


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The 2007-2008 credit crisis has even hit the commercial-paper market, long considered as good as [[cash]] for security and affordability. Volume on the market has declined in recent months while issuing [[corporation]]s have been forced to pay much higher interest rates of up to six percent on short-term paper.<ref>{{cite web|url=http://www.forbes.com/wallstreet/2008/09/30/banking-lending-credit-biz-wall-cx_lm_0930credit.html|name=Banks Are Squeezed, Credit Is Crushed|org=Forbes|date=October 1, 2008}}</ref> This trend is likely to force more businesses back to banks for credit-line financing of short-term obligations like accounts receivable and payrolls at a time of bank contractions.
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Revision as of 19:55, 1 October 2008

Template:Infobox Midpage Need Sponsor Right Commercial paper consists of high-denomination, short-term unsecured debt instruments issued by corporations and traded directly on the money market without involving the SEC. Generally considered safe and low-yielding, the recent global credit crisis has significantly pushed up the price of cash for some commercial-paper issuers.

Commercial paper must mature within 270 days but averages around 30 days, and because it is usually offered at a discount to prevailing interest rate it's considered a cheaper alternative to bank financing. The U.S. Federal Reserve publishes one-month, two-month and three-month rates on AA financial and AA non-financial commerical-paper rates in weekly statistical releases.[1] Because commerical paper is usually not issued in denominations below $100,000, retail investors typically gain exposure indirectly though money-market funds or money-market deposit accounts.[2]

Latest news[edit]

The 2007-2008 credit crisis has even hit the commercial-paper market, long considered as good as cash for security and affordability. Volume on the market has declined in recent months while issuing corporations have been forced to pay much higher interest rates of up to six percent on short-term paper.[3] This trend is likely to force more businesses back to banks for credit-line financing of short-term obligations like accounts receivable and payrolls at a time of bank contractions.

References[edit]

  1. About Commercial Paper. U.S. Federal Reserve.
  2. Money Market: Commercial Paper. Investopedia - Forbes Digital.
  3. Banks Are Squeezed, Credit Is Crushed. Forbes.