"Mission Coach" is a large creditworthy company manufacturing coaches for Indian Railways. It now wants to export these coaches to other countries and decides to invest in new hi-tech machines. Since the investment is large, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expense of floatation cost, the company decides to tap the money market.
(i) Name and explain the money market instrument the company can use for the above purpose.
(ii) What is the duration for which the company can get funds through the instrument?
(iii) State any other purpose for which this instrument can be used.
"Mission Coach" is a large creditworthy company manufacturing coaches for Indian Railways. It now wants to export these coaches to other countries and decides to invest in new hi-tech machines. Since the investment is large, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expense of floatation cost, the company decides to tap the money market.
(i) Name and explain the money market instrument the company can use for the above purpose.
(ii) What is the duration for which the company can get funds through the instrument?
(iii) State any other purpose for which this instrument can be used.
(i) Mission coach can meet the expense of floatation cost through Commercial Papers (CPs), which are unsecured promissory notes on which interest rates are lower than the primary rates of T-bills. The company can also consider Commercial Bills (CBs) that are issued by financial institutions like banks to cater to short-term financial needs of companies.
(ii) CPs can be issued for maturities of 15 days to 1 year from the date of issue. CBs can be issued almost immediately within one business day.
(iii) CPs can be an additional instrument for investments, short-term funding for business operations, etc. CBs can be considered for credit payments of companies.
(i) Mission coach can meet the expense of floatation cost through Commercial Papers (CPs), which are unsecured promissory notes on which interest rates are lower than the primary rates of T-bills. The company can also consider Commercial Bills (CBs) that are issued by financial institutions like banks to cater to short-term financial needs of companies.
(ii) CPs can be issued for maturities of 15 days to 1 year from the date of issue. CBs can be issued almost immediately within one business day.
(iii) CPs can be an additional instrument for investments, short-term funding for business operations, etc. CBs can be considered for credit payments of companies.
