What is Commercial Paper?

Cite this article as:"What is Commercial Paper?," in The Business Professor, updated January 20, 2015, last accessed July 16, 2020, https://thebusinessprofessor.com/lesson/what-is-commercial-paper/.

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What is “Commercial Paper”?

Commercial paper is a broad categorization of financial instruments (also referred to as an “instrument”) promising to pay or ordering payment to a person legally entitled to enforce the instrument. Because it has value for the individual in possession or holding the instrument, it is used as a substitute to money in commercial transactions.

•    Example: A check is commercial paper that orders a third party to pay money. A promissory note is another form of commercial paper that evidences a loan and outlines the duty of the maker of the note to make payment to the holder of the note.

•    Discussion: Why do you think it is necessary for commercial paper to entail an “unconditional” right to be paid? How is commercial paper different from a contract?

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