What is a key characteristic of commercial paper?

What is a key characteristic of commercial paper?

• A. It requires SEC registration
• B. It is secured by collateral
• C. It is exempt from SEC registration under the Act of 1933
• D. It can be converted to long-term debt

Answer: (C)

A key characteristic of commercial paper is that it is exempt from SEC registration under the Securities Act of 1933. This exemption is important as it allows companies to raise short-term funds without the lengthy and potentially costly process of SEC registration. Commercial paper is typically issued by large corporations and is used to finance short-term liabilities, such as inventory purchases or operational expenses. This characteristic makes it a flexible and efficient financing option for companies needing immediate capital. Additionally, the exemption strengthens the appeal of commercial paper as it allows for quicker access to funds and lower issuance costs. Investors in commercial paper typically require a higher credit quality since it is unsecured and not backed by collateral. These aspects highlight the nature of commercial paper as a short-term financial instrument designed for ease of use in corporate financing.

A key characteristic of commercial paper is that it is exempt from SEC registration under the Securities Act of 1933. This exemption is important as it allows companies to raise short-term funds without the lengthy and potentially costly process of SEC registration. Commercial paper is typically issued by large corporations and is used to finance short-term liabilities, such as inventory purchases or operational expenses. This characteristic makes it a flexible and efficient financing option for companies needing immediate capital.

Additionally, the exemption strengthens the appeal of commercial paper as it allows for quicker access to funds and lower issuance costs. Investors in commercial paper typically require a higher credit quality since it is unsecured and not backed by collateral. These aspects highlight the nature of commercial paper as a short-term financial instrument designed for ease of use in corporate financing.