What are Commercial Papers?

The global money market is complicated, challenging, and ever-changing. It’s filled with rewards, as well as risks, for investors of any level. One instrument of the global money market is called “commercial paper.” Commercial paper is a form of short-term promissory note sold to investors by banks. By definition, and by law, they have maturity dates ranging from one to 270 days (nine months). As required by law, the longer the date of maturity, the higher the interest rate will be – so returns on commercial paper maturing in nine months will be greater than the returns on something maturing in two weeks. Interest rates rise and fall with the global money market. Because commercial paper comes to maturity in such brief periods of time, it falls outside of government regulations and standards.

Commercial papers are sold by banks and other financial institutions to meet their own short-term obligations, like payroll and other daily operating expenses. It is also unsecured, which means that there are no liens involved on the issuing bank, corporation or the financial institution’s assets – so you’re essentially buying something at face-value, trust. Should the bank, corporation, or financial institution fail while you’re still holding their commercial paper, you are not guaranteed to get your money back when and if they sell off their assets. Because of this, only banks, corporations, and financial institutions with the highest credit ratings and most perfect business records are allowed to issue commercial paper.

Commercial paper is just one avenue to explore in the complicated world of the global economy. Many people have made significant amounts of money on it, while others haven’t. In order to make money, it’s important that you sit down with a financial services industry expert and ask him or her any and all questions you might have concerning your investment strategies. In these uncertain economic times it’s imperative we protect our investments as much as we can.