What is short -term paper?

Short -term article refers to investments that mature in nine months or less. The certificate of deposit with short maturity, short -term bonds, bills of exchange and cash register accounts are all considered a short -term document. These types of investments can be issued by governments, financial institutions or corporations. Short -term paper

tends to be low risk and high liquidity. Since this term is nine months or less and often only 90 days, there is only a small risk that the interest rate will increase drastically during this time, which would more attractive investment. A similarly short -term horizon means that the investor will regain his investment with interest in a relatively short period of time.

Many companies, financial and government institutions rely on a short -term document to finance most of their daily operations. Given the good loan of these organizations, they usually have no problem to issue and redeem these notes in the Order. During the credit crisis in 2008And 2009, however, many organizations were not able to issue a short -term document they needed to operate, and the US government had to help them rescue. This credit crisis forced some companies from business and made others restrict their businesses until short -term credit was available.

Sometimes issuing a company uses some of its assets as collateral for short -term paper transactions. This is referred to as commercial paper supported by asset. Receivables are commonly used as a collateral for commercial paper supported by asset. When the company sells its account receivables to the bank, the bank can issue commercial paper supported by asset. After 90 to 180 days, when the company collected its receivables, it will buy a mature paper plus interest. If the company has a credit report that is less than Stellar, commercial paper supported by an asset can be released to raise money in the short term.

The short -term article is usually purchased for a discount, so the investor receives the amount of the bond face. The difference between the price paid by the investor for the bond and the price for which he is redeemed or the amount of the face is the return on investment. Since it is an investment in a fixed return and frequently supported assets issuing institutions, this is relatively safe. The investment bank, which processes a large amount of short -term paper, can be referred to as a paper dealer.