How does the cost of commercial paper compare with the cost of short-term bank loans? With the cost of Treasury bills?

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How does the cost of commercial paper compare with the cost of short-term bank loans? With the cost of Treasury bills?

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How does the cost of commercial paper compare with the cost of short-term bank loans? With the cost of Treasury bills?

Explanation & AnswerSolution by a verified expert

Explanation

Commercial paper:- Commercial paper is an unsecured short-term debt instrument issued by large corporations to other business firms for financing accounts payable, stocks and other short-term financial obligations.
It is generally sold at a discounted value and its maturity varies between day 1 to 9 months.
 
Short-term bank loans:- Short-term loan is the temporary loan generally taken to support business or personal capital needs. Since they are borrowed for a shorter period of time, they are repaid within 6 months or a maximum of 18 months.
 
Treasury bills:- Treasury bills are government bonds or debt securities having a maturity period of less than a year. They do not carry any interest rate instead face value is paid at the end of the maturity period.

Verified Answer

Commercial paper - It is a debt tool issued by companies for financing temporary liabilities and inventories.
 
Short-term bank loans - Short-term loan is the temporary loan generally taken to support business or personal capital needs.
 
Treasury bills - It is the money market instrument issued by the government to meet temporary liquidity shortfalls.

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