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Commercial Paper

Promissory notes that are issued by PRIME RATED commercial firms and companies (not to be confused with DEBENTURES).  Commercial paper is issued for a short term, anywhere from 2 to 270 days.  Commercial paper is NEGOTIABLE.  

They are used to clear up current debts owed by the issuer.  They may or may not carry interest.  If they are not interest-bearing, then they are flat-rated: You lend me $100,000 today and next week I'll pay you back $100,050.   In this case, an investor would pay $100,000 for a promissory note with a face value of $100,050.  This is called buying at discount.

Commercial paper is generally marketed through DEALERS, as opposed to being traded in the SECONDARY MARKET.  The dealers who specialize in commercial paper have a stable of clients who are familiar with the firms  or types of firms to whom they are lending money, and the paper is configured specifically for those types of investors.

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