Commercial paper

Commercial paper is a money market security issued by large banks and corporations. It is generally used not to finance long-term investments but rather it is used for purchases of 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 returns are not large.

Related Topics:
Money market - Security - Bank - Corporation - Working capital - Money fund

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Because commercial paper maturities don't 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.

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Currently more than 1,700 companies in the United States issue commercial paper. Financial companies comprise the largest group of commercial papers 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.

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