Which of the following statements about Commercial Papers (CPs) is correct?
- They are long-term, secured debt instruments issued by the government
- They are unsecured, short-term money market instruments issued by highly rated corporates
- They are issued exclusively by Regional Rural Banks to fund agricultural credit
- They carry a fixed coupon rate paid annually
Answer: They are unsecured, short-term money market instruments issued by highly rated corporates
Commercial Papers are unsecured promissory notes issued by large, creditworthy corporations and primary dealers to meet their short-term working capital requirements. Because they are unsecured, only entities with high credit ratings can issue them, and they are always issued at a discount to their face value, maturing within 7 days to 1 year.