Question

Which one of the following is not a merit of commercial paper?

• A. A commercial paper is sold on an unsecured basis.
• B. As its is a freely transferable instrument, it has high liquidity.
• C. Only financially sound and highly rated firms can raise money through commercial papers.
• D. Companies can park their excess funds in commercial paper

Answer 1

The correct option is C Only financially sound and highly rated firms can raise money through commercial papers.

One of the demerits of commercial paper is that only financially sound and highly rated firms can raise money through commercial paper as it is an unsecured promissory note issued by a firm to raise funds for a short period of time.