Question Bank - Banking & Financial Services

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The certificate which evidences an unsecured corporate debt of short-term maturity, is known as :

A.
Certificate of Deposit
B.
Short-term loan certificate
C.
Treasury Bill
D.
Commercial paper

Solution:

The certificate which evidences an unsecured corporate debt of short-term maturity is known as Commercial paper. Commercial Paper: Commercial paper is a money-market security issued (sold) by large corporations to obtain funds to meet short-term debt obligations (for example, payroll) and is backed only by an issuing bank or company promise to pay the face amount on the maturity date specified on the note. Commercial paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities. Certificate Of Deposit: A certificate of deposit (CD) is a product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time. Short-Term Loan Certificate:A loan certificate is nothing but a statement of your loan account provided by your lender. It is the summary of the interest and the principal amount repaid by you towards your loan for the given financial year and serves as proof of loan repayment. A short term loan is a type of loan that is obtained to support a temporary personal or business capital need. As it is a type of credit, it involves a borrowed capital amount and interest that needs to be paid by a given due date, which is usually within a year from getting the loan. Treasury Bill: These are government bonds or debt securities with a maturity of less than a year. Treasury Bills or T Bills are basically instruments for short term borrowing issued by the Government. When the government goes to the financial market to raise money, it does so by issuing two types of debt instruments ” treasury bills and government bonds. Treasury bills are issued when the government needs money for a short period. These bills are issued only by the central government, and the interest in them is determined by market forces. Thus, the certificate which evidences an unsecured corporate debt of short-term maturity is known as Commercial Paper. Option 4 is the correct answer.

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