Credit guarantees for commercial paper:

Question

Quizplus · Accepted Answer

Credit guarantees for commercial paper are only as good as the credit of the guarantor. The guarantor can be a bank, a parent company or a third party entity. The guarantee provides reassurance to investors that they will be paid even if the issuer of the commercial paper defaults. However, the creditworthiness of the guarantor is important because, if it defaults, the guarantee becomes worthless. Credit guarantees are not issued by the Federal Reserve Bank of New York. They are typically issued by the guarantor or a third-party entity. Option A is incorrect because credit guarantees do not ensure that the issuer of commercial paper will use the funds obtained to provide credit.

Credit Guarantees for Commercial Paper