Financial Market — Secretarial Practice STD 12 Commerce / Arts — Question

• Commercial papers were first issued in the Indian money market in 1990.
• They are unsecured debt instruments.
• They are issued only by companies with strong credit ratings. They are issued at a discount rate. They are in the form of promissory notes.
• They are negotiable instruments i.e. they are freely transferable by endorsement and delivery.
• They are issued for a period of 15 days to 1 year.

(ii) Commercial Bills:

• When the goods are sold on credit, the buyer becomes liable to make payment on a specific date in the future.
• The seller draws a bill and the buyer accepts it. On acceptance, the bill becomes a marketable instrument called a Trade Bill.
• When a Trade Bill is accepted by a commercial bank, it is known as a commercial bill.
• They are in the form of negotiable instruments.
• They are usually issued for a period of 90 days. But this period can vary between 30 to 90 days.
• The liquidity of this bill is very high.
• It is the most common method to meet the credit needs of trade and industry.

(iii) Certificate of Deposits:

• Certificate of Deposits was first introduced to the money market of India in 1989.
• They are issued by commercial banks or financial institutions at discount, at par, or at market rate.
• They are in the form of promissory notes and stamp duty is applicable on the instrument.
• The maturity periods of this instrument are from 15 days to 1 year.
• The subscribers for certificates of deposits are individuals, associations, companies, trusts, etc.
• They are freely transferable by endorsement and delivery after a lock-in period of a minimum of 15 days.

(iv) Treasury Bills:

• Issue/Use of Treasury Bills was started by the Indian government in 1917.
• This instrument is issued by the government to institutions or the public to bridge the gap between receipts and expenditure.
• It is issued by the government on a discount for a fixed period not exceeding 1 year.
• These bills are in the nature of promissory notes containing a promise to pay the amount stated to the bearer of the instrument.
• The maturity period of this bill is 182 days.
• These bills enjoy a high degree of liquidity.