Commercial paper【terms explained】

What is commercial paper?

Commercial paper refers to a short-term, unsecured debt instrument is sued by corporations and financial institutions.

It is an alternative for companies relative to other forms of borrowing that may be used to fund short-term expenses.

What are the key risks investing in commercial paper?

Credit risk. The issuer may default on their obligations. There is a possibility for an investor to lose the entire invested capital.

Liquidation and valuation risk. Commercial paper investments may have no or limited liquidity with valuations that may be based on estimates which cannot be marked to market until sale.

There is no quarantee of selling these investments at fair value.

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(Coming Up: How to Calculate Apple's Intrinsic Value: A Practical Guide Using Benjamin Graham's Formula. Stay tuned for tomorrow's article.)