alleryStart learning →Commercial paper is which kind of instrument?
AA secured long-term bond issued by a bank
BAn unsecured short-term debt of a strong firm
CA share of ownership in a listed company
DA guaranteed line of credit from a lender
Answer & Solution
Correct answer: B. An unsecured short-term debt of a strong firm
1. Commercial paper is unsecured short-term debt, an IOU issued by a financially strong corporation.
2. Being unsecured, it rests on the issuer's standing rather than on pledged assets.
3. It is therefore both a short-term investment for cash-rich firms and a financing option for major corporations.
4. A guaranteed line of credit is the revolving credit agreement, which is a bank facility rather than a traded instrument.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.2 How Organizations Use Funds_
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