Commercial paper has 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) a and b are both correct.

Question

Quizplus · Accepted Answer

Commercial paper can be issued below the prime rate, which means the issuer can borrow at a lower cost. Additionally, commercial paper requires no compensating balances, which eliminates the requirement to hold additional funds in an account. Therefore, both options A and B are correct. However, commercial paper is unsecured, meaning it is not backed by any particular asset, nor does it have any collateral to protect the buyer. Therefore, option C is incorrect.

Commercial Paper Has Which of the Following Advantages to the Issuer