Question

Which of the following is a limitation of commercial paper?

• A. The size of money that can be raised through commercial paper is limited to the excess liquidity available with suppliers of funds at a particular time.
• B. A commercial paper is sold on an unsecured basis,
• C. As it is freely transferable instrument, it has high liquidity.
• D. It provides more funds compared to other sources.

Answer 1

Answer: (A)

The size of money that can be raised through commercial paper is limited to the excess liquidity available with suppliers of funds at a particular time.

Commercial paper is an unsecured promissory note given by a firm to raise finances for a short period of time. Only financially sound and highly rated firms can raise money through commercial papers.

The size of money that can be raised through commercial paper is limited to the excess liquidity available with the suppliers of funds at a particular time.