In addition to Treasury bill (T-Bills), one of the instruments commonly used in financial markets is the Commercial Paper (CP). Commercial paper (CP) is:
• promissory note that is not accompanied by guarantees (unsecured promissory notes) issued by the company to obtain short-term funds and sold to investors in financial markets.
• Promissory Notes in which the issuer promises to pay a certain amount of money at maturity, the maturity period of CP ranged from several days to 270 days.
Issuance of CP can be done directly (direct placement) to the investor or indirectly (indirect placement) by using the services of intermediaries.
Excess Commercial Paper for the publisher:
a. CP interest rate lower than the prime rate (loan interest rate charged to customers primarily banks, so the cost of funds would be cheaper).
b. No need to provide assurance
c. Issuance relatively cheaper because it only involves the issuer and investors
d. More flexible maturity period can be extended with the approval of investors.
For the investor:
a. CP offers a higher income than Certificates of Deposit, Time Deposit or Treasury Bills.
b. Can be resold (discounted) without having to wait for maturity.
c. Relatively have high level of safety due to CP issuers are generally companies with high ratings.
• promissory note that is not accompanied by guarantees (unsecured promissory notes) issued by the company to obtain short-term funds and sold to investors in financial markets.
• Promissory Notes in which the issuer promises to pay a certain amount of money at maturity, the maturity period of CP ranged from several days to 270 days.
Issuance of CP can be done directly (direct placement) to the investor or indirectly (indirect placement) by using the services of intermediaries.
Excess Commercial Paper for the publisher:
a. CP interest rate lower than the prime rate (loan interest rate charged to customers primarily banks, so the cost of funds would be cheaper).
b. No need to provide assurance
c. Issuance relatively cheaper because it only involves the issuer and investors
d. More flexible maturity period can be extended with the approval of investors.
For the investor:
a. CP offers a higher income than Certificates of Deposit, Time Deposit or Treasury Bills.
b. Can be resold (discounted) without having to wait for maturity.
c. Relatively have high level of safety due to CP issuers are generally companies with high ratings.
CP weaknesses in terms of investors and issuers are:
a. CP is an instrument for investors who are not accompanied by guarantees (unsecured promissory notes)
b. There is a possibility of doing engineering issuers financial statements to show the state of liquidity and the ability to gain profits.
c. For the publishing company, CP is a short-term funding source so that the company is less flexibility to be used as investment capital.
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