A. An unsecured obligation issued by a corporation or bank to finance its short-term credit needs.
Listen to pronunciationLegal Definition -
An unsecured obligation issued by a corporation or bank to finance its short-term credit needs, such as accounts receivable and inventory. Maturities typically range from 2 to 270 days. Commercial paper is available in a wide range of denominations, can be either discounted or interest-bearing, and usually have a limited or nonexistent secondary market. Commercial paper is usually issued by companies with high credit ratings, meaning that the investment is almost always relatively low risk.
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Current Usage -
Dozens of companies signed up last week to sell short-term IOUs called commercial paper to the Fed, which will purchase three-month debt that has high credit ratings. Most of the firms that plan to participate have large financial businesses that rely heavily on short-term funding for their day-to-day cash needs. They include banks such as Morgan Stanley and a U.S. unit of Swiss bank UBS AG, as well as the finance arm of General Electric Co., Ford Motor Credit and GMAC LLC.
By SERENA NG and LIZ RAPPAPORT, Wall Street Journal, Oct. 27, 2008