Commercial paper offers which of the following advantages to the issuer?
A) It may be issued below the prime rate.
B) It requires no compensating balances.
C) It is secured by corporate assets to protect the buyer.
D) It may be issued below the prime rate and requires no compensating balances.

Question

Quizplus · Accepted Answer

Commercial paper can be issued below the prime rate, which means the issuer can save on borrowing costs. Additionally, it does not require compensating balances, which are minimum balances that banks require companies to maintain in exchange for a loan. Therefore, the issuer can avoid tying up cash in low-interest accounts. It is not secured by corporate assets as it is an unsecured short-term debt instrument.

Commercial Paper Offers Which of the Following Advantages to the Issuer