Commercial paper is a short-term unsecured promissory note, negotiable and transferable by ______, with a fixed maturity period.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → endorsement and delivery
Option (1) dematerialisation — Incorrect. Dematerialisation means holding securities as an electronic balance in a demat account. It concerns shares held through a depository and plays no part in passing on a commercial paper.
Option (2) endorsement and delivery — Correct. Commercial paper is a negotiable promissory note. It passes to a new holder by endorsement and delivery: the holder signs it over and hands it on.
Option (3) listing on a stock exchange — Incorrect. Listing lets shares and debentures be bought and sold in the secondary market. Commercial paper is a money market instrument, and listing plays no part in its transfer.
Option (4) discounting with a bank — Incorrect. Discounting is how the seller of goods gets cash on a trade bill before it matures. It raises funds on a bill; it does not transfer a commercial paper.
NCERT (Pre-rationalised Edition): “2. Commercial Paper: Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short-term funds at lower rates of interest than market rates. It usually has a maturity period of 15 days to one year. The issuance of commercial paper is an alternative to bank borrowing for large companies that are generally considered to be financially strong. It is sold at a discount and redeemed at par. The original purpose of commercial paper was to provide short-terms funds for seasonal and working capital needs. For example companies use this instrument for purposes such as bridge financing.” |