value of paper definition
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Answer:
Commercial Paper is defined as a money market instrument that is used for obtaining short-term funding and is usually in the form of a promissory note issued by investment-grade banks and corporations. Most commercial papers are easily rolled over by paying for old issuance from the proceed of new issuances. Hence it becomes a continuous source of funding.
Investments in such securities are made by institutional investors and high net worth individuals (HNI) directly & by others through mutual funds or exchange-traded funds (ETF).
It is not meant for the general public, and hence, there is a restriction on the advertisement to market the securities. A secondary market also exists for commercial papers, but the market players are mostly financial institutions.
It is issued at a discount to the face value, and upon maturity, the face value becomes the redemption value. It is issued in large denominations, e.g., $100,000.
The maturity of commercial paper ranges from 1 to 270 days (9 months), but usually, it is issued for 30 days or less. Some countries also have a maximum duration of 364 days (1 year). The higher the duration, the higher, is the effective rate of interest on these papers.
There is no need to register the papers with the Securities Exchange Commission (SEC), and hence, it helps in saving the administrative expenses and results in lesser filings.