What Is Short-Term Paper?

Short-term paper refers broadly to fixed-income securities that typically have original maturities of less than nine months. Short-term paper is usually issued at a discount and provides a relatiౠvely low-risk 𒀰financing alternative for companies, governments, or other organizations to fund normal operations.

Understanding Short-Term Papers

Short-term papers are negotiable debt instruments that are usually 澳洲幸运5官方开奖结果体彩网:unsecured, but which may also be backed by assets such as securities or loans issued by a corporation. These financial instruments are sometimes considered part of the 澳洲幸运5官方开奖结果体彩网:money market and are almost always issued 澳洲幸运5官方开奖结果体彩网:at a discount to par and then repaid at 澳洲幸运5官方开奖结果体彩网:face value upon maturity.

The difference between the purchase price and the face value of the security represents the return on investment for the holders. For the issuer, this difference represents the cost of financing the loan security. The 澳洲幸运5官方开奖结果体彩网:debt security can also be issued as an interest-bearing sಌecurity.

Examples of short-term paper include U.S. 澳洲幸运5官方开奖结果体彩网:Treasury bills and negotiable instruments issued by financial and non-financial entities, such as 澳洲幸运5官方开奖结果体彩网:commercial paper, promissory notes, and bills of exchange.

In the case of U.S. Treasury bills, the papers are backed by the full faith and credit of the U.S. government and are, thus, considered the safest investments because the government cannot default.

Investing and Issuing Short-Term Papers

Short-term papers are usually issued with a minimum denomination of $25,000. This means that the main investors of these securities are 澳洲幸运5官方开奖结果体彩网:institutional investors who seek short-t♒erm vehicles to deposit their cash temporarily.

Given that short-term papers are a better alternative to holding cash in a bank account because they provided a return as opposed to cash, investors find them an attractive opportunity. Mutual funds, for instance, invest heavily in short-term paper due to their relative safety and high 澳洲幸运5官方开奖结果体彩网:liquidity.

The majority of financial institutions rely on being able to roll over short-term paper for their day-to-day financing needs. During the U.S. 澳洲幸运5官方开奖结果体彩网:financial-market meltdown of 2008, institutions essentially halted issuing short-term paper and the U.S. government had to intervene to provide liquidity for corporations caught without the means to finance operations.

Issuers of Short-Term Papers

Short-term paper is issued by a variety of entities, including governments, corporations, and financial institutions as they are a common form of 澳洲幸运5官方开奖结果体彩网:financing the daily operations of any entity. It is a simpler form of financing than having to obtain a loan from a bank, ☂for example. They are also easy to set up an🌊d don't require much information to be disclosed.

The issued paper is rated by a 澳洲幸运5官方开奖结果体彩网:rating agency, such as 澳洲幸运5官方开奖结果体彩网:Standard & Poor's, so in𝕴vestors understand the risk of ꧋the entity they are purchasing the short-term paper from.

澳洲幸运5官方开奖结果体彩网:Structured investment vehicles (SIV) that invest in long-term assets finance those assets by selling short-term paper with an average maturity of 90 days or less. The paper can be backed by a pool of mortgages or loans used for collateral and is, hence, referred to as short-term 澳洲幸运5官方开奖结果体彩网:asset-backed paper. In the case of default, investors of t💖he asset-backed paper can seize and sell the underlying collateral assets.

澳洲幸运5官方开奖结果体彩网:Commercial paper is a commonly used type of unsecured, short-term paper issued by corporations, typically used for the financing of payroll, 澳洲幸运5官方开奖结果体彩网:accounts payable🌜, and inventories, as well as meeting other near-term liabilities. Maturities on commercial paper typically last several days, and rarely range longer than 270 days. Commercial paper is usually issued in larger denominations, typical𓆉ly $100,000.

It is not uncommon for issuers to adjust the amounts and/or the maturities of papers to suit the investment needs of a particular buyer or group of buyers. Investors can purchase short-term paper directly from the issuer or through dealers who act as intermediaries between the issuer and the lender.🎃