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Commercial paper - class-XI

Description: commercial paper
Number of Questions: 17
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Tags: business studies commerce sources of business finance business capital/finance sources of business finance - 2
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Commercial papers provide _______ funds as compared to other sources.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. less

  2. more

  3. medium

  4. equal

Show answer
Correct Option: B
Explanation:
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. Commercial paper provides more funds as compared to other sources. 

A commercial paper is sold on an __________ basis and does not contain any restrictive conditions.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Secured

  2. Unsecured

  3. Both a and b

  4. None of the above

Show answer
Correct Option: B
Explanation:

Commercial paper emerged as a source of short-term finance in our country in the early nineties.

Commercial paper is sold on an unsecured basis and does not contain any restrictive conditions. It is issued by one firm to another business firm, insurance companies, banks etc.

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

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. A commercial paper is sold on an unsecured basis.

  2. As its is a freely transferable instrument, it has high liquidity.

  3. Only financially sound and highly rated firms can raise money through commercial papers.

  4. Companies can park their excess funds in commercial paper

Show answer
Correct Option: C
Explanation:

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.

The maturity period of a commercial paper usually ranges from ________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. 20 to 40 days

  2. 60 to 90 days

  3. 120 to 365 days

  4. 90 to 364 days

Show answer
Correct Option: D
Explanation:

Commercial paper is  issued by a firm to raise funds for a short period of time, the time can be ranging from 90 days to 364 days after which it has to be redeemed. Commercial paper is an unsecured promissory note.

Commercial paper may vary from _____ days to ______ days.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. 90, 150

  2. 90, 300

  3. 90, 364

  4. 90, 363

Show answer
Correct Option: C
Explanation:

Commercial paper emerged as a source of short-term finance in our country in the early nineties. Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days.

The amount raised by commercial paper is generally very _______.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. large

  2. small

  3. equal

  4. both (a) and (b)

Show answer
Correct Option: A
Explanation:
Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days. It is issued by one firm to another business firm. The amount raised by commercial papers is very large as the debt is totally unsecured.

As commercial paper is a freely transferable instrument, it has ________ liquidity.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. High

  2. Low

  3. Medium

  4. Equal

Show answer
Correct Option: A
Explanation:

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.

Commercial paper is an unsecured _________ note issued by the firm to raise funds for a short-term period.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Promissory

  2. Debit

  3. Credit

  4. Sales

Show answer
Correct Option: A
Explanation:

Commercial paper emerged as a source of short-term finance in our country in the early nineties. Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days.

The regulation of commercial paper comes under the preview of the ____________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Central Bank

  2. Reserve Bank of India

  3. State Government

  4. Central Government

Show answer
Correct Option: B
Explanation:

Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days. It is issued by one firm to another business firm, insurance companies, pension funds, and banks. The amount issued by commercial papers is generally very large. The regulation of commercial paper comes under the purview of Reserve Bank of India.

Commercial Paper emerged as a source of __________ finance in our country in the early _________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. short-term, sixties

  2. short-term, seventies

  3. long-term, eighties

  4. short-term, nineties

Show answer
Correct Option: D
Explanation:

Commercial paper emerged as a source of short-term finance in our country in the early nineties. Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days.

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

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. limited

  2. unlimited

  3. equal

  4. higher

Show answer
Correct Option: A
Explanation:

Commercial paper is an unsecured promissory note given by a firm to raise finances for a short period of time. 

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.

The articles of association contains the _________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. rules

  2. regulations

  3. by-laws

  4. all of the above

Show answer
Correct Option: D
Explanation:
Articles of Association are the rules regarding internal management of a company.These rules are subsidiary to the Memorandum of Association and hence, should not contradict or exceed anything stated in the Memorandum of Association. The Article of Association contains rules, regulations, by-laws, etc.

A commercial paper provides a __________ source of funds.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Smaller

  2. Continuous

  3. Larger

  4. None of the above

Show answer
Correct Option: B
Explanation:
A commercial paper provides a continuous source of funds. This is because their maturity can be tailored to suit the requirements of the issuing firm. Further, maturing commercial paper can be repaid by selling new commercial paper.

Which of the following is a limitation of commercial paper?

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. 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.

  2. A commercial paper is sold on an unsecured basis,

  3. As it is freely transferable instrument, it has high liquidity.

  4. It provides more funds compared to other sources.

Show answer
Correct Option: A
Explanation:

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.

The cost of commercial paper to the issuing firm is ________ than the cost of commercial bank loans.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. lower

  2. higher

  3. equal

  4. none of the above

Show answer
Correct Option: A
Explanation:

Commercial Paper is issued by one firm to another business firm, Insurance company, pension funds and it is an impersonal method of raising finances. therefore the cost of commercial paper to the issuing firm is lower than the cost of commercial bank loans.

Commercial paper is an __________ method of financing.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. personal

  2. impersonal

  3. nominal

  4. real

Show answer
Correct Option: B
Explanation:

Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period. It is issued by one firm to another business firm, insurance companies, pension funds, and banks. Hence, Commercial Paper is an impersonal method of financing.

Commercial papers represent a new financial instrument issued for the purpose of _______________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Project financing

  2. Working capital

  3. Leasing of plant and equipment

  4. Import of capital goods

Show answer
Correct Option: B
Explanation:

Commercial papers are short-term debt, unsecured instrument which is issued by the companies to meet their short term obligations that is to meet their working capital requirements. They are usually issued for 15 days to 1 year.

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