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The largest holder of commercial paper is a. Money market mutual funds b. The Fed c....

The largest holder of commercial paper is

a. Money market mutual funds

b. The Fed

c. Insurance companies

d. The SEC

Dealers in Treasury securities finance their inventories through

a. Repurchase agreements (RPs)

b. Loans from commercial banks

c. Loans from the Fed

d. Dealers do not hold inventories

To be able to issue commercial paper, the issuer must

a. Be highly rated by a credit rating agency

b. Collateralize the paper

c. Be endorsed by the SEC

d. Both a and b
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Answer #1

a. Money market mutual funds are the largest holders of Commercial Paper.

A major benefit of commercial paper is that it does not need to be registered with the Securities and Exchange Commission (SEC) as long as it matures before nine months, or 270 days, making it a very cost-effective means of financing.

Other corporations, financial institutions, wealthy individuals and money market funds are usually buyers of commercial paper. Insurance companies also invests in the commercial paper, but the major holders are the mutual funds.

The correct Option is option a

b. Repurchase agreements, are contracts for the sale and future repurchase of a financial asset, most often Treasury securities.

Repurchase agreements (repos) are the key vehicle by which government dealers finance their huge inventories of Treasury securities.  Dealers in securities use repos to manage their liquidity, finance their inventories of treasury securities.

The correct option is option a.

c. To issue commercial paper one should have high credit ratings.

Since such instruments are not backed by a collateral, only firms with high credit ratings from recognised agencies can sell commercial paper. Any company keen to raise funds through CP needs to obtain the credit rating either from CRISIL, ICRA, CARE, FITCH or any other credit rating agency (CRA) that may be specified by RBI. A major benefit of commercial paper is that it does not need to be registered with the Securities and Exchange Commission (SEC) as long as it matures before nine months, or 270 days, making it a very cost-effective means of financing

The correct option is option a.

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