Gujarat BoardEnglish MediumSTD 12 CommerceOCMFINANCIAL MARKET3 Marks
Question
Explain commercial paper in detail.
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Answer
Commercial paper:
The way central government issues $T-$bills to fulfill its financial needs, commercial papers are issued by large private corporations having very high and strong reputation as well as financial credit in the market.
Banks, large private institutions, etc. can issue commercial papers.
Commercial paper is an unsecured and short term document just like a promissory note. It is also known as finance paper, industrial paper and corporate paper.
Commercial papers can be issued for minimum seven days and maximum one year. It is regulated by Reserve Bank of India.
Just like $T-$Bills, commercial papers are also sold at a discount rather than paying interest.
Commercial paper became more popular at the world level after $1980.$
Reserve Bank of India issued commercial papers first time in January, $1990.$
It is a negotiable instrument and therefore transferable. Corporates and financial institutions can issue commercial paper for minimum seven days and maximum one year.
It is issued for minimum $₹ 5$ lakh and then in multiples of $₹ 5$ lakh.
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