Commercial paper has an advantage that:
A) it has low probability of default.
B) it requires small compensating balances.
C) it is secured by an independent third party.
D) it requires no compensating balances.

Question

Quizplus · Accepted Answer

Commercial paper requires no compensating balances, which means that the borrower does not have to maintain a certain level of funds in a deposit account with the lender to secure the loan. This makes it an attractive financing option for companies with strong credit ratings and high liquidity, as they can quickly raise funds at a low cost without tying up their cash reserves. However, commercial paper is not secured by an independent third party and is subject to default risk.

Commercial Paper Has an Advantage That