Commercial Paper (CP) is an unsecured money market instrument issued in the form of a ____________?
Last updated Jun 24, 2026
Correct Answer:
Option D —
Promissory Note
A Commercial Paper (CP) is an unsecured money market instrument issued in the form of a Promissory Note. Introduced in India in 1990, it allows highly-rated corporate borrowers to diversify their short-term borrowing sources.
Key Characteristics of Commercial Paper:
Unsecured: It is not backed by collateral, which is why only companies with high credit ratings can typically issue them.
Negotiable & Transferable: It is a negotiable instrument, meaning it can be transferred from one investor to another.
Maturity: It is a short-term instrument with a maturity period typically ranging from a minimum of 7 days up to 1 year.
Discounted Basis: CPs are issued at a discount to their face value and redeemed at the full face value upon maturity.
Why the other options are incorrect:
A: A Cheque is an order to a bank to pay a specific sum of money from a person's account; it is not a debt instrument.
B: A Bill of Exchange involves three parties (drawer, drawee, and payee) and is an order to pay, whereas a CP is a direct promise to pay by the issuer.
C: A Demand Draft is a pre-paid negotiable instrument used for transferring money, typically issued by a bank.
Answer verified by Quintessence Classes faculty — Karan Nagar, Srinagar.
