What is commercial paper?what are its advantages and disadvantages?

1.	What is commercial paper?what are its advantages and disadvantages?
Answer» \tCommercial paper is a\xa0short-term unsecured money market instruments introduced in India in 1990.\tAlso a promissory note which is negotiable and transferable.\tHave a maturity period ranging from a minimum of 15 days to a maximum of one year.\tPrimarily used by large and creditworthy companies for bridge financing i.e. used as an alternative to borrowings from bank and capital market.\tThe companies pay an interest rate lower than the market rates and are used for purposes such as to meet the floatation cost on long-term borrowings from the capital market.Advantages\tIt is more liquefiable and free to transfer.\tIt provided more funds rather than any other source.\tNo restrictive condition as it is unsecured money market instrument\tThe cost involved in issuing commercial paper for a firm is lower than the cost the commercial bank loans.\tIt is a continuous source of funds as their maturity can be adjusted according to the firm the one who issued the commercial paper.Disadvantages\tThe firm one who has good financial background can issue commercial paper as it is based on unsecured money market.\tOnly limited fund can be raised through commercial paper.\tMaturity period cannot be extended at times of firm’s financial problem.

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