Which instrument is an unsecured short-term promissory note issued by a corporation to raise short-term cash?

Which instrument is an unsecured short-term promissory note issued by a corporation to raise short-term cash?

• A. Banker’s Acceptances
• B. Commercial Paper
• C. Federal Funds
• D. Negotiable Certificates of Deposit

Answer: (B)

Unsecured short-term promissory notes issued by a corporation to raise short-term cash are commercial paper. This instrument is designed for very brief maturities—often up to about nine months—and relies on the issuer’s creditworthiness rather than collateral. It’s typically sold in large denominations to institutional buyers in the money markets, usually at a discount, with repayment at maturity. Because it’s unsecured, it carries more credit risk than secured funds, but it’s cheaper for high‑quality issuers. Other options don’t fit: Banker's Acceptances are bank-guaranteed drafts used mainly in international trade; Federal Funds are overnight interbank loans between banks; Negotiable Certificates of Deposit are bank-issued time deposits that are negotiable, not issued by corporations.

Unsecured short-term promissory notes issued by a corporation to raise short-term cash are commercial paper. This instrument is designed for very brief maturities—often up to about nine months—and relies on the issuer’s creditworthiness rather than collateral. It’s typically sold in large denominations to institutional buyers in the money markets, usually at a discount, with repayment at maturity. Because it’s unsecured, it carries more credit risk than secured funds, but it’s cheaper for high‑quality issuers.

Other options don’t fit: Banker's Acceptances are bank-guaranteed drafts used mainly in international trade; Federal Funds are overnight interbank loans between banks; Negotiable Certificates of Deposit are bank-issued time deposits that are negotiable, not issued by corporations.