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Question

Difficulty: HardThe Money Market: Operations and Financial Instruments

Commercial paper is a short-term, unsecured debt instrument issued by creditworthy corporations specifically to finance the acquisition of long-term fixed capital assets.

Answer: Answer

Answer

False
The statement is false because commercial paper is a short-term money market instrument designed exclusively to raise working capital for short-term operational expenses. Acquiring long-term fixed capital assets is a function of the capital market using instruments such as shares, stocks, or debentures.

Step-by-Step Solution

1
Identify the market classification of commercial paper.
Commercial paper is a short-term unsecured promissory note issued in the money market with a maturity period typically ranging from a few days to 270 days.
Money market operations deal strictly with short-term funds and debt instruments maturing within one year.
2
Analyze the purpose of the funds stated in the proposition.
Financing long-term fixed capital assets requires long-term capital market instruments such as stocks, shares, or corporate debentures.
Using short-term money market instruments for long-term fixed asset acquisition creates a severe maturity mismatch and misinterprets the fundamental role of the money market.

Key Concept

Functional differentiation between money market and capital market financial instruments
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Topics

The Money Market: Operations and Financial Instruments

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