Commercial paper

This article's factual accuracy may be compromised due to out-of-date information. Please help update this article to reflect recent events or newly available information. (May 2015)

Part of a series on
Economics
History Outline Index
Branches and classifications Applied Econometrics Heterodox International Micro / Macro Mainstream Mathematical Methodology Political JEL classification codes
Concepts, theory and techniques Economic systems Economic growth Market National accounting Experimental economics Computational economics Game theory Operations research Middle income trap Industrial complex
By application Agricultural Behavioral Business Cultural Democracy Demographic Development Digitization Ecological Education Engineering Environmental Evolutionary Expeditionary Feminist Financial Geographical Happiness Health Historical Humanistic Industrial organization Information Institutional Knowledge Labour Law Managerial Monetary Natural resource Organizational Participation Personnel Planning Policy Public Public choice / Social choice theory Regional Rural Service Socio Sociological Solidarity Statistics Urban Welfare
Notable economists de Mandeville Quesnay Smith Malthus Say Ricardo von Thünen List Bastiat Cournot Mill Gossen Marx Walras Jevons George Menger Marshall Edgeworth Clark Pareto von Böhm-Bawerk von Wieser Veblen Fisher Pigou Heckscher von Mises Schumpeter Keynes Knight Polanyi Frisch Sraffa Myrdal Hayek Kalecki Röpke Kuznets Tinbergen Robinson von Neumann Hicks Lange Leontief Galbraith Koopmans Schumacher Friedman Samuelson Simon Buchanan Arrow Baumol Solow Rothbard Greenspan Sowell Becker Ostrom Sen Lucas Stiglitz Thaler Hoppe Krugman Piketty more
Lists Glossary Economists Publications (journals) Schools
Business portal Money portal
v t e

Commercial paper, in the global financial market, is an unsecured promissory note with a fixed maturity of usually less than 270 days. In layperson terms, it is like an "IOU" but can be bought and sold because its buyers and sellers have some degree of confidence that it can be successfully redeemed later for cash, based on their assessment of the creditworthiness of the issuing company.

Commercial paper is a money-market security issued by large corporations to obtain funds to meet short-term debt obligations (for example, payroll) and is backed only by an issuing bank or company promise to pay the face amount on the maturity date specified on the note. Since it is not backed by collateral, only firms with excellent credit ratings from a recognized credit rating agency will be able to sell their commercial paper at a reasonable price. Commercial paper is usually sold at a discount from face value and generally carries lower interest repayment rates than bonds or corporate bonds due to the shorter maturities of commercial paper. Typically, the longer the maturity on a note, the higher the interest rate the issuing institution pays. Interest rates fluctuate with market conditions but are typically lower than banks' rates.

Commercial paper, though a short-term obligation, is typically issued as part of a continuous rolling program, which is either a number of years long (in Europe) or open-ended (in the United States).^[1]