Consider the following statements with reference to the Commercial Paper CP 1 It is a short term deb...........

Economic Affairs Financial Markets

Consider the following statements with reference to the Commercial Paper (CP):

1.It is a short term debt instrument issued by companies to raise fund generally for a time period of up to one year.

2.Commercial Papers are preferred over bond because of its lower rate of interest repayment than latter.

3.Eligible participants shall obtain credit rating from Security and Exchange Board of India (SEBI) for issuance of CPs.

Which of the statements given above is/are correct?

1 only

3 only

1 and 3 only

1 and 2 only

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Explanation:

1 only

It is a short-term debt instrument issued by companies to raise funds, generally for a time period of up to one year. (Correct)

Commercial Paper (CP) is indeed a short-term debt instrument issued by companies to raise funds for a specified period, usually up to one year.

Commercial Papers are preferred over bonds because of its lower rate of interest repayment than the latter. (Incorrect)

Commercial Papers typically have a higher rate of interest compared to bonds. CPs are short-term instruments, and the interest rates are generally lower for longer-term instruments like bonds.

Eligible participants shall obtain a credit rating from the Securities and Exchange Board of India (SEBI) for the issuance of CPs. (Incorrect)

While credit ratings are required for the issuance of CPs, it is generally obtained from credit rating agencies registered with SEBI, not directly from SEBI.

Therefore, the correct statement is 1 only.