What is a characteristic feature of commercial paper?

What is a characteristic feature of commercial paper?

• A. It is a secured loan to corporations
• B. It is an equity instrument
• C. It is an unsecured debt instrument
• D. It offers a fixed interest rate

Answer: (C)

Commercial paper is an unsecured debt instrument issued by corporations to raise short-term financing. It is typically used to cover accounts payable, inventories, and other short-term liabilities. The distinctive feature of commercial paper lies in its lack of collateral; it is backed only by the issuer's creditworthiness, making it an unsecured borrowing option. This characteristic differentiates it from secured loans, which require collateral. Additionally, because commercial paper is a form of debt, it is not classified as an equity instrument. While it may have varying interest rates based on market conditions, it does not necessarily offer a fixed interest rate. Thus, the correct identification of commercial paper as an unsecured debt instrument highlights its primary nature within the financial markets.

Commercial paper is an unsecured debt instrument issued by corporations to raise short-term financing. It is typically used to cover accounts payable, inventories, and other short-term liabilities. The distinctive feature of commercial paper lies in its lack of collateral; it is backed only by the issuer's creditworthiness, making it an unsecured borrowing option.

This characteristic differentiates it from secured loans, which require collateral. Additionally, because commercial paper is a form of debt, it is not classified as an equity instrument. While it may have varying interest rates based on market conditions, it does not necessarily offer a fixed interest rate. Thus, the correct identification of commercial paper as an unsecured debt instrument highlights its primary nature within the financial markets.