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Share The world of fixed-income securities can be divided into two main categories. Capital markets consist of securities with maturities of more than days, while the money market comprises all fixed-income instruments that mature in days or fewer.
Commercial paper falls into the latter category and is a common fixture in many money market mutual funds. This short-term instrument can be a viable alternative for retail fixed-income investors who are looking for a better rate of return on their money.
Basic Characteristics of Commercial Paper Commercial paper is an unsecured form of promissory note that pays a fixed rate of interest. It is typically issued by large banks or corporations to cover short-term receivables and meet short-term financial obligations, such as funding for a new project.
It is seldom used as a funding vehicle for longer-term obligations because other alternatives are better suited for that purpose. Commercial paper provides a convenient financing method because it allows issuers to avoid the hurdles and expense of applying for and securing continuous business loans, and the Securities and Exchange Commission SEC does not require securities that trade in the money market to be registered.
History of Commercial Paper Commercial paper was first introduced over years ago, when New York merchants began to sell their short-term obligations to dealers that acted as middlemen.
These dealers would purchase the notes at a discount from their par value and then pass them on to banks or other investors. The borrower would then repay the investor an amount equal to the par value of the note.
The Federal Reserve also began trading commercial paper along with Treasury bills from that time until World War II to raise or lower the level of monetary reserves circulating among banks.
After the war, commercial paper began to be issued by a growing number of companies, and eventually it became the premier debt instrument in the money market.
The card issuers would then purchase the receivables placed on the cards by customers from these merchants and make a substantial profit on the spread. A debate raged in the s about whether banks were violating the Banking Act of by underwriting commercial paper, since it is not classified as a bond by the SEC.
Today commercial paper stands as the chief source of short-term financing for investment-grade issuers along with commercial loans and is still used extensively in the credit card industry. Financial conglomerates such as investment firms, banks and mutual funds have historically been the chief buyers in this market, and a limited secondary market for this paper exists within the banking industry.
Wealthy individual investors have also historically been able to access commercial paper offerings through a private placement. The market took a severe hit when Lehman Brothers declared bankruptcy inand new rules and restrictions on the type and amount of commercial paper that could be held inside money market mutual funds were instituted as a result.
Nevertheless, these instruments are becoming increasingly available to retail investors through online outlets sponsored by financial subsidiaries. Commercial paper usually pays a higher rate of interest than guaranteed instruments, and the rates tend to rise along with national economic growth.
Some financial institutions even allow their customers to write checks and make transfers online with commercial paper fund accounts in the same manner as a cash or money market account. However, investors need to be aware that these notes are not FDIC-insured. They are backed solely by the financial strength of the issuer in the same manner as any other type of corporate bond or debenture.
As with any other type of debt investment, commercial paper offerings with lower ratings pay correspondingly higher rates of interest.An outline is a “blueprint” or “plan” for your paper.
It helps you to organize your thoughts and arguments. A good outline can make conducting research and then writing the paper very efficient. (I) An atomic sentence with a one-place predicate is true iff the referent of the term is a member of the extension of the predicate, and an atomic sentence with a two-place predicate is true iff the ordered pair formed from the referents of the terms in order is a member of the extension of the predicate.
A term paper is basically a type of a research paper that is written by college students in an entire academic period or term. In this segment, we learn how to write good term paper that will earn you a .
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