Is commercial paper a short term liquid asset Is commercial paper a short term liquid asset

Is commercial paper a short term liquid asset, commercial paper

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Treasury bills, commercial paper, marketable securitiesmoney market funds and short-term government bonds. Link to this page: Assume portfolio is diversified.

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Changes affecting individual issues as well as the overall market conditions can take place so quickly that investors do not have the opportunity to sell the security. SIVs may invest in various asset categories, some of which are difficult to value because they do not trade on any active market.

Read Introduction To Commercial Paper.

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Nevertheless, many companies still maintain bank lines of credit as a "backup". Asset backed commercial paper - Asset backed commercial paper ABCP programs gained popularity partly as a response to the unsecured status of traditional commercial paper but also as a way for financial institutions to more efficiently finance their receivables through off-balance sheet vehicles.

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Overview[ edit ] The use of commercial paper has been adopted by every state in the United States except Louisiana. This interest rate can be adjusted for time, contingent on the number of days the commercial paper is outstanding. SIV programs have evolved away from the traditional funding purpose of CP. Investors take a look at political risksinterest rate risks and inflation when investing in government bonds.

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Led to creation of exchange traded essay on peer pressure acts as a morale booster Three techniques for the measurement of performance that incorporate both risk and return are Jensen index, Treynor index, Sharpe index Jensen Performance Index A measure of performance that compares the realized return with the return that should have been earned for the amount of risk borne by the investor.

Wide range of maturity provide more flexibility.

BREAKING DOWN 'Cash Equivalents'

With ABCP, certain assets such as credit card receivables or auto loans and their cash flows, support a specific CP issue. Advantages 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 days, making it a very cost-effective means of financing.

The dealer market for commercial paper involves large securities firms and subsidiaries of bank holding companies.

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Disadvantages of commercial paper: There are several programs still in existence that are fully supported, in which the program sponsor is obligated to reimburse CP investors regardless of delinquencies or defaults except in the case of a bankruptcy of the program.