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Commercial paper consists of short-term, unsecured promissory notes issued

by well-known and financially strong companies.

Commercial paper is traded mainly in the primary market. Opportunities for

resale in the secondary market are more limited.

Commercial paper is rated prime, desirable, or satisfactory, depending on the

credit standing of the issuing company.

There are two major types of commercial paper.

Direct paper is issued mainly by large finance companies and bank holding
companies directly to the investor.

Dealer paper, or industrial paper, is issued by security dealers on behalf of

their corporate customers (mainly nonfinancial companies and smaller
financial companies).

Relatively low interest
Flexible interest rates choice of dealer or direct
Large amounts may be
borrowed conveniently
The ability to issue paper
gives considerable
leverage when
negotiating with banks

Risk of alienating banks
whose loans may be
needed when an
emergency develops
May be difficult to raise
funds in the paper
market at times
Commercial paper must
generally remain
outstanding until
maturity - does not
permit early retirement
without penalty

A bankers acceptance is
a time draft drawn on
and endorsed by an
importers bank.
Acceptances are used in
international trade
because most exporters
are uncertain of the
credit standing of their
The issuing bank
guarantees to pay the
face value of the
acceptance when it
matures, thus shielding
exporters and investors
in international markets
from default risk.

Acceptances carry
maturities ranging from
30 to 270 days, with 90
days being the most
They are traded among
financial institutions,
industrial corporations,
and securities dealers as
a high-quality
investment and source
of ready cash.

The Eurocurrency
market has arisen
because of the
tremendous need
worldwide for funds
denominated in dollars,
Euros, pounds, and other
relatively stable
The Eurocurrency market
represents the largest of
all money markets
worldwide, with total
funds probably in excess
of $4 trillion.

Eurodollars are deposits

of U.S. dollars in banks
located outside the U.S.
The large majority of
Eurodollar deposits are
held in Europe, although
Europes share of the
total is declining.

Eurodollars and other

Eurocurrency deposits
are continually on the
move in the form of
They are employed to
finance the import and
export of goods, to
supplement government
tax revenues, to provide
working capital for the
foreign operations of
corporations, and to
provide liquid reserves
for the largest banks.

Most Eurocurrency
deposits are short-term
deposits ranging from
overnight to one year,
although a small
percentage are longterm time deposits.
Eurocurrency deposits
are known to be volatile
and highly sensitive to
fluctuations in interest
rates and currency
prices. They also carry
political risk and default