Commercial Paper
April 23, 2009 by Muhammad Haidar
Filed under Banking, Business, Finance, Investing, Liquidity, Loans, Muhammad Haidar
Introduction: Every business needs money to run. The nature of expenses incurred by the business, decides the type of financing required by it. As an example, payroll expenditure, common to all businesses, is a recurring expenditure, required every fortnight, or monthly, to remunerate the workforce. On the other hand, funds required to buy an office building for the business is required, once in probably several decades. Whereas the former is a short term expenditure requiring short term financing, the latter is a long term one, requiring correspondingly long term financing.
There are various sources of financing available to a firm, depending on its needs, as also its eligibility to source such finance. Banks and Financial Institutions are, of course, the major and most widely accessed source of funds.
But there are situations, when a firm is either not in a position to access Bank funds on account of various constraints, or it is in such a strong position as to raise funds on more favorable terms by taking the unconventional route of issuing Commercial Paper.
Commercial Paper (CP): Commercial Paper is a unsecured, short-term, debt instrument, in the form of a usance promisory note, issued at a discount to face value, to meet short term financing requirements.
Rules regarding the issue and conduct of the Commercial Paper business differ from country to country. However, some of the common features of the CP is that it is unsecured. It is a short-term debt instrument, not over one year in maturity. It is issued at a discount on its face value, i.e., its maturity value is equal to its face value. Higher the creditworthiness of the issuer, lower the discount allowed.
It is meant to raise funds to meet the short term expenses of the firm, like those related to payroll, inventories and the like. It is not meant to be invested in long term asset like land, buildings, plant and machinery etc. However, some firms do use the funds from CP for long term requirements, which is called “bridge-financing”, as a stop gap arrangement to long term financing.
Who can issue: From the definition of Commercial Paper, as given above, it may be inferred that only highly rated companies and financial institutions can issue CP, as it is unsecured. The investors can only depend upon the creditworthiness of the issuer, and have no other support, like collaterals, to fall back on, in case of the issuer’s default.
Normally, two types of firms may issue CP. One, a firm that does not find the traditional financing methods convinient and or economical. Second, a firm, that, by virtue of its financial standing, and rating, is able to command the most favorable terms for its borrowings. Such firms, instead of approaching financiers, issue their own debt instruments, in the form of CP, as and when required.
However, it is also observed that firms, not enjoying the best ratings are also in the fray with this product (CP), with the help of a tie-up with their better rated peers.
Benefits of CP to the issuer:
1) In many countries, rules regarding the issue and conduct of the Commercial Paper business are quite liberal, and do not attract the normally comprehensive set of regulations, applicable to other debt instruments, like bonds.
2) The cost of funds obtained through the CP route is generally less than that from the Banking sector.
3) The issuers, being top rated, and with good standing, do not have to provide any collateral to the investors.
4) The issuers have the freedom to fix the discount on the face value of the CP, depending on their creditworthiness.
5) Issuers can avoid brokers and dealers, by going directly to the investors, and saving on administrative and other costs.
6) Issuers have the option to “roll over” their debt, i.e. issue fresh CP to pay off the maturing one.
Summary: To sum up, Commercial Paper is a niche financing option available to certain types of firms, with apparently more pluses than minuses for the issuers.
How does a millionaire think and behave towards money?
February 23, 2009 by admin
Filed under Personal Finance
I am trying to develop a millionaire’s mindset. What thoughts and actions belong to someone who is wealthy?
I have 20k to invest.What/ Who should I inest in.I want out w/ my money in 3-5yrs?
I could probably invest a bit more but I am also planning on buying 40k worth of gold, so in actuallity I have 45-50 that I want to make work for me…Please, help my fiance and I have a very successful business and dont have the timer to research things like this. Our families are also useless in this manner. they have made suggestions but I want something more along the lines of Dubai Real Estate or something…
Investing Strategy for 23 year old?
I am 23 and have recently graduated from college and have a good job ($42,000 per year salary + bonus). The only debt I have is about $20,000 in student loans. I have recently begun buying stocks, but I only have about $1,500 invested right now. My stocks are doing pretty well, but I don’t have enough invested right now to make any significant gains. I would like to continue to invest more money as I earn more, however I am not sure what my best option is at this point. Should I continue to buy individual stocks, or should I invest in mutual funds or even Roth IRA? I feel that I’ll get dinged by taxes if I continue buying stocks and don’t start taking advantage of some of the tax benefits associated with IRAs or Roth IRAs. Any advice???
Frank Castle, you’re a huge tool. Don’t waste my time with your bullsh*t. I suggest you to f*ck off.
How does it feel to be millionaire?
February 8, 2009 by admin
Filed under Other - Business & Finance
I want to know how it feels to be a millionaire. Does the great feeling of becoming rich fades away? Would a millionaire admit that he needs more than just money in his life? Besides of having more money in your bank, what significantly changed before and after becoming a millionaire?
You dont have to be a millionaire to answer the question. Just answer one of the questions above.
Who will buy all the property?
Around the world massive amounts of properties have been built over the past 10 years some are finished and some are not. It seems like everyone wanted a piece of the real estate market. I’ve seen some news stories about developments in Southern Spain going unsold. The US and UK markets are lacking buyers. There are so many other places that are looking for buyers too. A lot of the property available was directed by foreign buyers. In the gulf area there are enormous developments looking for investors and buyers. I just can see how people are going to be able to invest in all these projects around the world with a ginat slowdown worldwide. I kind of think this is going to compound as things worsen. I guess I just think the money isn’t there in general. I mean are you planning to buy a condo in Dubai or South Africa? How about Spain or Portugal? Are the buyers really there for all these projects that are directed at foreign buyers.
What do you think of property markets that rely on foreign investors. Are the investors drying up? Will this add to the overall bankruptcy/Banking issues?
Is investing in gold a good idea?
I have a lot of money invested in mutual funds and am concerned with the recent drop in the stock market as well as the recent concerns with subprime lenders….do you think that investing in gold is a good hedging strategy? Do you think that the price of gold would rise if some of these lenders tank?
Got money?
January 4, 2009 by admin
Filed under Other - Local Businesses
Who’s rich and wants to invest and purchase residential, office and retail space in Dubai, Abu Dhabi, Qatar, Lebanon and Jordan?
What is the safest and best way to be a millionaire by retirement?
January 4, 2009 by admin
Filed under Personal Finance
Ok, I’m 23 years old. I want to save around $500 a month till 65. What is the safest way and best way to be a millionaire or more? I want to pull out my money whenever I want but knowing me, I’ll only do that like once every 5-6 years.