Important Banking Question -
Commercial Papers
The Commercial papers (CP) are money market instrument and are just
"Unsecured" Promissory" Notes. As these papers are Unsecured and not
backed by any collateral security, highest credit rated firms or
companies with people's trust are able to sell their CPs at reasonable
price. The maturity of the CP is from 7 days to 1 year. Usually the CP
is sold at a discount value and redeemed at face value. For example, if
Akash buys a CP with face value at ` 100 at the discount value of ` 98,
when he redeems the CP on its maturity.
Commercial Deposit (CD)
There is not much of a difference between a Commercial Paper (CP) and
Certificate of Deposits (CD) except the CD is issued by the Commercial
banks and Finance Institutions. Using the CDs banks are able to mobilize
the bulk financial resources.
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