R B I Acts

R B I Acts

In an effort to contain the slide in the rupee value, RBI has imposed new restrictions and actions.

Liquidity Adjustment Facility:  This was allowed up to 1% of the total deposits when introduced originally and was available for a period of 14 days maximum. On July 16, this year RBI put a ceiling of Rs 75,000crores under this facility. This restriction was completely removed yesterday ie 23^rd July (within a week of the earlier notification) and instead a ceiling of 0.5% of the total deposits instead of the original 1% of the total deposits has been introduced. This measure is likely to suck out around Rs 5000 crores from the system.

In an extension of this notification, RBI has further limited that the funds under this head to standalone Primary Dealers will be limited to 100% of their net owned funds as per the latest audited balance sheet.   

Cash Reserve Ratio:  In a drastic change from the existing rules, RBI has now directed all banks to maintain 99% of their CRR requirement on a daily basis. Earlier this was allowed at 70% of the CRR requirement and the actual maintenance of the CRR was on a fortnightly basis. This measure again is expected to suck out around Rs 5000 crores from the system.

Infosys Verbal Ability Question-1

Infosys Verbal ability Question consists of 40 in 35 Minutes

Verbal Ability Test (40 Questions in 35 minutes)

Directions for Questions 1-5: Read the passage and answer the questions that follow on the basis of the information provided in the passage.

Much of the information we have today about chimpanzees comes from the ground breaking, long-term research of the great conservationist, Jane Goodall. Jane Goodall was born in London, England, on April 3, 1934. On her second birthday, her father gave her a toy chimpanzee named Jubilee. Jubilee was named after a baby chimp in the London Zoo, and seemed to foretell the course Jane’s life would take. To this day, Jubilee sits in a chair in Jane’s London home. From an early age, Jane was fascinated by animals and animal stories.

By the age of 10, she was talking about going to Africa to live among the animals there. At the time, in the early 1940s, this was a radical idea because women did not go to Africa by themselves. As a young woman, Jane finished school in London, attended secretarial school, and then worked for a documentary filmmaker for a while. When a school friend invited her to visit Kenya, she worked as a waitress until she had earned the fare to travel there by boat. She was 23 years old. Once in Kenya, she met Dr. Louis Leakey, a famous palaeontologist and anthropologist. He was impressed with her thorough knowledge of Africa and its wildlife, and hired her to assist him and his wife on a fossil-hunting expedition to Olduvai Gorge. Dr. Leakey soon realized that Jane was the perfect person to complete a study he had been planning for some time. She expressed her interest in the idea of studying animals by living in the wild with them, rather than studying dead animals through palaeontology. Dr. Leakey and Jane began planning a study of a group of chimpanzees who were living on the shores of Lake Tanganyika in Kenya. At first, the British authorities would not approve their plan. At the time, they thought it was too dangerous for a woman to live in the wilds of Africa alone. But Jane’s mother, Vanne, agreed to join her so that she would not be alone. Finally, the authorities gave Jane the clearance she needed in order to go to Africa and begin her study. In July of 1960, Jane and her mother arrived at Gombe National Park in what was then called Tanganyika and is now called Tanzania. Jane faced many challenges as she began her work. The chimpanzees did not accept her right away, and it took months for them to get used to her presence in their territory. But she was very patient and remained focused on her goal. Little by little, she was able to enter their world. At first, she was able to watch the chimpanzees only from a great distance, using binoculars. As time passed, she was able to move her observation point closer to them while still using camouflage. Eventually, she was able to sit among them, touching, patting, and even feeding them.

It was an amazing accomplishment for Jane, and a breakthrough in the study of animals in the wild. Jane named all of the chimpanzees that she studied, stating in her journals that she felt they each had a unique personality. One of the first significant observations that Jane made during the study was that chimpanzees make and use tools, much like humans do, to help them get food. It was previously thought that humans alone used tools. Also thanks to Jane’s research, we now know that chimps eat meat as well as plants and fruits. In many ways, she has helped us to see how chimpanzees and humans are similar. In doing so, she has made us more sympathetic toward these creatures, while helping us to better understand ourselves. The study started by Jane Goodall in 1960 is now the longest field study of any animal species in their natural habitat. Research continues to this day in Gombe and is conducted by a team of trained Tanzanians.

Jane’s life has included much more than just her study of the chimps in Tanzania. She pursued a graduate degree while still conducting her study, receiving her Ph.D. from Cambridge University in 1965. In 1984, she received the J. Paul Getty Wildlife Conservation Prize for "helping millions of people understand the importance of wild life conservation to life on this planet." She has been married twice: first to a photographer and then to the director of National Parks. She has one son. Dr. Jane Goodall is now the world’s most renowned authority on chimpanzees, having studied their behaviour for nearly 40 years. She has published many scientific articles, has written two books, and has won numerous awards for her ground breaking work. The Jane Goodall Institute for Wildlife Research, Education, and Conservation was founded in 1977 in California but moved to the Washington, D.C., area in 1998. Its goal is to take the actions necessary to improve the environment for all living things. Dr. Goodall now travels extensively, giving lectures, visiting zoos and chimp sanctuaries, and talking to young people involved in environmental education. She is truly a great conservationist and an amazing human being.

Read this sentence from the article.

1. 'But she was very patient and remained focused on her goal'. What is an antonym for the

Word focused?

A) bothered

B) tired

C) disinterested

D) concerned

Ans: C

2. What is the author’s purpose in writing this article?

A) to entertain the reader with stories about chimpanzees

B) to inform the reader of the importance of wildlife conservation

C) to warn the reader about the challenges of working in Africa

D) to describe the work and life of Jane Goodall.

Ans: D

3. Which of the following is NOT one of the reasons Dr. Leakey chose Jane to work with him?

A) She knew a lot about Africa.

B) She knew a lot about African wildlife.

C) She earned the money to travel to Africa on her own.

D) She was interested in studying animals in the wild.

Ans: C

4. Which of the following is NOT true of chimpanzees?

A) Chimpanzees are often comfortable with strangers right away.

B) Chimpanzees eat meat as well as plants and fruit.

C) Chimpanzees use tools to help them get food.

D) Different chimpanzees have different personalities.

Ans: A

5. Jane Goodall is now the world’s most renowned authority on chimpanzees, having studied

their behaviour for nearly forty years. What does authority mean?

A) an intelligent person

B) one who studies animals

C) a scientist

D) an expert

Ans: B

Directions for Questions 6-10:

Read the passage and answer the questions that follow on the basis of the information provided in the passage.

There are some men who seem to be always on the lookout for trouble and, to tell the truth, they are seldom disappointed. Listening to such men one would think that this world is one of the stormiest and most disagreeable places. Yet, after all it is not such a bad place and the difficulty is often in the man who is too thin- skinned. On the other hand, the man who goes out expecting people to be like himself, kind and brotherly, will be surprised at the kindness he meets even in the most unlike quarters. A smile is apt to be met with a respective smile while the sneer is just as apt to provoke a snarl. Men living in the same neighbourhood may live vastly different lives. But it is not the neighbourhood which is quarrelsome, but the man within us. And we have it in our power to change our neighbourhood into a pleasant one by simply changing our own ways.

6. The passage is about

A) our disagreeable and hostile world

B) a kindly and pleasant world

C) our different and unresponsive world

D) the world and what one makes of it.

Ans: D

7. "..............they are seldom disappointed". The statement denotes that such men

A) welcome difficulties as a morale booster

B) do not have face any trouble

C) manage to keep unruffled in the face of discomforts

D) generally do not fail to come across troubles

Ans: D

8. The author's own view of the world is that it is

A) one of the loveliest and quietest places

B) an unpleasant and turbulent place

C) one's own excessive sensitivity that makes it a bad place

D) a sordid place for those who suffer in life

Ans: C

9. Which of the following is opposite in meaning to the expression 'thin-skinned' as said in the passage?

A) Insensitive

B) Intelligent

C) Awkward

D) Obstinate

Ans: A

10. "On the other hand............. unlikely quarter" The statement shows that people's reaction

to our attitude is

A) Generally indifferent

B) surprisingly responsive

C) often adverse

D) mainly favourable

Ans: B

Directions 11-18: Pick out the most effective word from the given words to fill in the blank to make the sentence meaningfully complete.

11. For a few seconds, Madan was.............blinded by the powerful lights of the oncoming car

A) heavily   B) largely    C) greatly     D) powerfully       E) totally

Ans: E

12. His interest in the study of human behaviour is indeed very..............

A) strong     B) large     C) broad       D) vast      E) deep

Ans: E

13. The police have................a complaint against four persons

A) entered      B) lodged       C) registered     D) noted       E) received

Ans: C

14. The improvement made by changes in the system was ....................and did not warrant

the large expenses.

A) large       B) small       C) minute       D) marginal         E) uncertain

Ans: D

15. The man who is..........................hesitating, which of the two things he will do first, will do

neither.

A) persistently       B) constantly       C) insistently       D) consistently      E) perpetually

Ans: A

16. He is too...................to be deceived easily

A) strong        B) modern        C) kind       D) honest        E) intelligent

Ans: E

17. The Manager gave her his ..... that the complaint would be investigated

A. assurance      B. suggestion     C. avowal         D. support

Ans: A

18. I am feeling ...... better today.

A. rather        B. too        C. fairly       D. very

Ans: C

Direction Questions19-26:

In each question below is given a passage followed by several inference. You have

to examine each inference separately in the context of the passage and decide upon its degree of truth or falsity. Mark your answer as :

A. if the inference is ' definitely true' i.e. it directly follows from the facts given in the passage

B. if the inference is ' probably true' though not definitely true in the light of the facts given

C. if you think the data are in adequate i.e., from the facts given you cannot say whether the inference is likely to be true or false

D. if you think the inference is ' probably false' though not definitely false in the light of the facts given; and

E. if you think inference is ' definitely false' i.e, it contradicts the given facts.

 

Passage I

Urban services have not expanded fast enough to cope with urban expansion. Low investment allocation has tended to be under spent. Both public (e. g. water and sewage) and private (e.g. low-income area housing) infrastructure quality has declined. The impact of this environment in which children live, and the supporting services available to them when they fall ill, seems clear. The decline in average food availability and the rise in absolute poverty point in the same satisfactory direction

19. There is nothing to boast about urban services

Ans: A

20. The public transport system is in the hands of private sector.

Ans: C

21. Birth rate is higher in Urban areas compared to rural areas.

Ans: C

 

22. Low-cost urban housing is one of the priorities

Ans: B

23. The environment around plays an important role on the health status.

Ans: A

Passage II

Though the state cultivates only 3.2 lakh tonnes of mangoes, they are of premium quality and with mangoes becoming second most consumed fruit in the world after grapes. The government has been trying exporting it through sea route which is cheaper . An experiment which was done in this regard last year has proved successful.

24. Quality of mangoes is an important factor in exports.

Ans: A

25. The state also exports good quality grapes

Ans: C

26. The state also cultivates a large number of medium quality mangoes.

Ans: E

Direction27-32: In each of the following questions, find out which part of the sentence has an error. if there is no mistake the answer is 'no error'

27. I going there / will not solve / this complicated problem / No error

A.                    B.                            C.                             D.

Ans : A

28. You can get /all the information you want / in this book / No error

              A                                 B                             C                  D

Ans : A 

29. The bus could not / ascend the steep hill / because it was in the wrong gears / No error

A.                          B.                                             C                                       .D.

Ans : C

30.No stronger / a figure than his / is prescribed in the history / No error

A.                        B.                               C.                             D.

Ans : C

31. Most people would have /attended the union meeting / if they had / longer notice of it /

                         A                                             B                            C                       D

No error

     E

Ans : D

32. And though one did not / quite believe his claim / one saw no harm / in granting him

                       A                                   B                                     C                              D

permission / No error - E

Ans: E

Directions33-40: In each question, a part of sentence is printed in italics. Below each sentence, some phrases are given which can substitute the italicized part of the sentence. If the sentence is correct as it is, the answer

is 'No correction required'

33. The problems of translation are still remain.

A. are remain.

B. will remained

C. will still remain.

D. No Correction required

Ans : C

34. It is ten years since I have begun living here

A. begun

B. had begun

C. began

D. No Correction required

Ans : C

35. Education is a strong instruments for mouldings the character of the young.

A. striking

B. powerful

C. potent

D. No Correction required

Ans : B

 

36. He gave the I.A.S. examination in all seriousness.

A. appeared

B. took

C. undertook

D. No Correction required

Ans: B

 

37. He has cooked that meal so often he can do it with his eyes closed.

A. mind blank

B. eyes covered

C. hands full

D. No Correction required

Ans: D

 

38. The young hikers went as far as they finally got lost in the valley.

A. so far that

B. too far that

C. so far as that

D. No Correction required

Ans: A

 

39. He stopped to work an hour ago

A. to working

B. to have worked

C. working

D. No Correction required

Ans : C

40. The fact finding committee has so far not made any advancement.

A. progress

B. improvement

C. stride

D. No Correction required

Ans: A

First Thing Every Morning

First Thing Every Morning

Turn Your Life Around One Day at a Time

If you had a bank that credited your account each morning with $86,400—with no balance carried from day to day—what would you do? Well, you do have such a bank...time. Every morning it credits you with 86,400 seconds. Every night it rules off as "lost" whatever you have failed to use toward good purposes. It carries over no balances and allows no overdrafts. You can't hoard it, save it, store it, loan it or invest it. You can only use it—time. Here's a story that drives the point home. Arthur Berry was described by Time as "the slickest second-story man in the East," truly one of the most famous jewel thieves of all times. In his years of crime, he committed as many as 150 burglaries and stole jewels valued between $5 and $10 million. He seldom robbed from anyone not listed in the Social Register and often did his work in a tuxedo. On an occasion or two, when caught in the act of a crime by a victim, he charmed his way out of being reported to the police.

Like most people who engage in a life of crime, he was eventually caught, convicted and served 25 years in prison for his crimes. Following his release, he worked as a counterman in a roadside restaurant on the East Coast for $50 a week. A newspaper reporter found him and interviewed him about his life. After telling about the thrilling episodes of his life he came to the conclusion of the interview saying, "I am not good at morals. But early in my life I was intelligent and clever, and I got along well with people. I think I could have made something of my life, but I didn't. So when you write the story of my life, when you tell people about all the burglaries, don't leave out the biggest one of all... Don't just tell them I robbed Jesse Livermore, the Wall Street baron or the cousin of the king of England. You tell them Arthur Berry robbed Arthur Berry." Here are six terrific truths about time: First: Nobody can manage time. But you can manage those things that take up your time. Second: Time is expensive. As a matter of fact, 80 percent of our day is spent on those things or those people that only bring us two percent of our results. Third: Time is perishable. It cannot be saved for later use. Fourth: Time is measurable. Everybody has the same amount of time...pauper or king. It is not how much time you have; it is how much you use. Fifth: Time is irreplaceable. We never make back time once it is gone. Sixth: Time is a priority. You have enough time for anything in the world, so long as it ranks high enough among your priorities.

RBI Guidelines for Commercial Paper

RBI Guidelines for Commercial Paper

1. What is Commercial Paper (CP)?

Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.

2. When it was introduced?

It was introduced in India in 1990.

3. Why it was introduced?

It was introduced in India in 1990 with a view to enabling highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors. Subsequently, primary dealers and all-India financial institutions were also permitted to issue CP to enable them to meet their short-term funding requirements for their operations.

4. Who can issue CP?

Corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP.

5. Whether all the corporates would automatically be eligible to issue CP?

No. A corporate would be eligible to issue CP provided –

a. the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore

b. company has been sanctioned working capital limit by bank/s or all-India financial institution/s; and

c. the borrowal account of the company is classified as a Standard Asset by the financing bank/s/ institution/s.

6. Is there any rating requirement for issuance of CP? And if so, what is the rating requirement?

Yes. All eligible participants shall obtain the credit rating for issuance of Commercial Paper either from Credit Rating Information Services of India Ltd. (CRISIL) or the Investment Information and Credit Rating Agency of India Ltd. (ICRA) or the Credit Analysis and Research Ltd. (CARE) or the FITCH Ratings India Pvt. Ltd. or such other credit rating agency (CRA) as may be specified by the Reserve Bank of India from time to time, for the purpose.

The minimum credit rating shall be A-2 [As per rating symbol and definition prescribed by Securities and Exchange Board of India (SEBI)].

The issuers shall ensure at the time of issuance of CP that the rating so obtained is current and has not fallen due for review.

7. What is the minimum and maximum period of maturity prescribed for CP?

CP can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue. However, the maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid.

8. What is the limit up to which a CP can be issued?

The aggregate amount of CP from an issuer shall be within the limit as approved by its Board of Directors or the quantum indicated by the Credit Rating Agency for the specified rating, whichever is lower.

As regards FIs, they can issue CP within the overall umbrella limit prescribed in the Master Circular on Resource Raising Norms for FIs, issued by DBOD and updated from time-to-time.

9. In what denominations a CP that can be issued?

CP can be issued in denominations of Rs.5 lakh or multiples thereof.

10. How long can the CP issue remain open?

The total amount of CP proposed to be issued should be raised within a period of two weeks from the date on which the issuer opens the issue for subscription.

11. Whether CP can be issued on different dates by the same issuer?

Yes. CP may be issued on a single date or in parts on different dates provided that in the latter case, each CP shall have the same maturity date. Further, every issue of CP, including renewal, shall be treated as a fresh issue.

12. Who can act as Issuing and Paying Agent (IPA)?

Only a scheduled bank can act as an IPA for issuance of CP.

13. Who can invest in CP?

Individuals, banking companies, other corporate bodies (registered or incorporated in India) and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) etc. can invest in CPs. However, investment by FIIs would be within the limits set for them by Securities and Exchange Board of India (SEBI) from time-to-time.

14. Whether CP can be held in dematerilaised form?

Yes. CP can be issued either in the form of a promissory note (Schedule I given in the Master Circular-Guidelines for Issue of Commercial Paper dated July 1, 2011 and updated from time –to-time) or in a dematerialised form through any of the depositories approved by and registered with SEBI. Banks, FIs and PDs can hold CP only in dematerialised form.

15. Whether CP is always issued at a discount?

Yes. CP will be issued at a discount to face value as may be determined by the issuer.

16. Whether CP can be underwritten?

No issuer shall have the issue of Commercial Paper underwritten or co-accepted.

17. Whether CPs are traded in the secondary market?

Yes. CPs are actively traded in the OTC market. Such transactions, however, are to be reported on the FIMMDA reporting platform within 15 minutes of the trade for dissemination of trade information to market participation thereby ensuring market transparency.

18. What is the mode of redemption?

Initially the investor in CP is required to pay only the discounted value of the CP by means of a crossed account payee cheque to the account of the issuer through IPA. On maturity of CP,

(a) when the CP is held in physical form, the holder of the CP shall present the instrument for payment to the issuer through the IPA.

(b) when the CP is held in demat form, the holder of the CP will have to get it redeemed through the depository and receive payment from the IPA.

19. Whether Stand by facility is required to be provided by the bankers/FIs for CP issue?

CP being a `stand alone’ product, it would not be obligatory in any manner on the part of banks and FIs to provide stand-by facility to the issuers of CP.

However, Banks and FIs have the flexibility to provide for a CP issue, credit enhancement by way of stand-by assistance/credit backstop facility, etc., based on their commercial judgement and as per terms prescribed by them. This will be subjected to prudential norms as applicable and subject to specific approval of the Board.

20. Whether non-bank entities/corporates can provide guarantee for credit enhancement of the CP issue?

Yes. Non-bank entities including corporates can provide unconditional and irrevocable guarantee for credit enhancement for CP issue provided :

a. the issuer fulfils the eligibility criteria prescribed for issuance of CP;

b. the guarantor has a credit rating at least one notch higher than the issuer by an approved credit rating agency and

c. the offer document for CP properly discloses: the networth of the guarantor company, the names of the companies to which the guarantor has issued similar guarantees, the extent of the guarantees offered by the guarantor company, and the conditions under which the guarantee will be invoked.

21. Role and responsibilities of the Issuer/Issuing and Paying Agent and Credit Rating Agency.

Issuer:

a. Every issuer must appoint an IPA for issuance of CP.

b. The issuer should disclose to the potential investors its financial position as per the standard market practice.

c. After the exchange of deal confirmation between the investor and the issuer, issuing company shall issue physical certificates to the investor or arrange for crediting the CP to the investor's account with a depository.

Investors shall be given a copy of IPA certificate to the effect that the issuer has a valid agreement with the IPA and documents are in order (Schedule II given in the Master Circular-Guidelines for Issue of Commercial Paper dated July 1, 2011 and updated from time –to-time).

Issuing and Paying Agent

a. IPA would ensure that issuer has the minimum credit rating as stipulated by the RBI and amount mobilised through issuance of CP is within the quantum indicated by CRA for the specified rating or as approved by its Board of Directors, whichever is lower.

b. IPA has to verify all the documents submitted by the issuer viz., copy of board resolution, signatures of authorised executants (when CP in physical form) and issue a certificate that documents are in order. It should also certify that it has a valid agreement with the issuer (Schedule II given in the Master Circular-Guidelines for Issue of Commercial Paper dated July 1, 2011 and updated from time –to-time).

c. Certified copies of original documents verified by the IPA should be held in the custody of IPA.

Credit Rating Agency

a. Code of Conduct prescribed by the SEBI for CRAs for undertaking rating of capital market instruments shall be applicable to them (CRAs) for rating CP.

b. Further, the credit rating agencies have the discretion to determine the validity period of the rating depending upon its perception about the strength of the issuer. Accordingly, CRA shall at the time of rating, clearly indicate the date when the rating is due for review.

c. While the CRAs can decide the validity period of credit rating, CRAs would have to closely monitor the rating assigned to issuers vis-a-vis their track record at regular intervals and would be required to make its revision in the ratings public through its publications and website

22. Is there any other formalities and reporting requirement with regard to CP issue?

Fixed Income Money Market and Derivatives Association of India (FIMMDA), may prescribe, in consultation with the RBI, any standardised procedure and documentation for operational flexibility and smooth functioning of CP market. Issuers / IPAs may refer to the detailed guidelines issued by FIMMDA on July 5, 2001 in this regard, and updated from time-to-time.

Every CP issue should be reported to the Chief General Manager, Reserve Bank of India, Financial Markets Department, Central Office, Fort, Mumbai through the Issuing and Paying Agent (IPA) within three days from the date of completion of the issue, incorporating details as per Schedule III given in the Master Circular-Guidelines for Issue of Commercial Paper dated July 1, 2011 and updated from time-to-time.

Commercial Paper

Here is another article on an important subject with great relevance to our country. Commercial papers are being issued by Blue chip companies in our country also, and the rates and issuance terms are monitored and governed by rules framed by RBI. ( A separate post on these is being posted)

Introduction To Commercial Paper

The world of fixed-income securities can be divided into two main categories. The capital markets consist of securities with maturities of more than 270 days, while the money market comprises all fixed-income instruments that mature in 270 days or fewer. Commercial paper falls into the latter category and is a common fixture in many money market mutual funds. This short-term instrument can be a viable alternative for retail fixed-income investors who are looking for a better rate of return on their money.

Basic Characteristics 
Commercial paper is an unsecured form of promissory note that pays a fixed rate of interest. It is typically issued by large banks or corporations to cover short-term receivables and meet short-term financial obligations, such as funding for a new project. As with any other type of bond or debt instrument, the issuing entity offers the paper assuming that it will be in a position to pay both interest and principal by maturity. It is seldom used as a funding vehicle for longer-term obligations because other alternatives are better suited for that purpose.

Commercial paper provides a convenient financing method because it allows issuers to avoid the hurdles and expense of applying for and securing continuous business loans, and the SEC does not require securities that trade in the money market to be registered. It is usually offered at a discount with maturities that can range from one to 270 days, although most issues mature in one to six months.

History of Commercial Paper 
Commercial paper was first introduced over 100 years ago, when New York merchants began to sell their short-term obligations to dealers that acted as middlemen. These dealers would purchase the notes at a discount from their par value and then pass them on to banks or other investors. The borrower would then repay the investor an amount equal to the par value of the note.

Marcus Goldman of Goldman Sachs was the first dealer in the money market to purchase commercial paper, and his company became one of the biggest commercial paper dealers in America following the Civil War. The Federal Reserve also began trading commercial paper along with treasury bills from that time until World War II to raise or lower the level of monetary reserves circulating among banks.

After the war, commercial paper began to be issued by a growing number of companies, and eventually it became the premier debt instrument in the money market. Much of this growth was facilitated by the rise of the consumer credit industry, as many credit card issuers would provide cardholder facilities and services to merchants using money generated from commercial paper. The card issuers would then purchase the receivables placed on the cards by customers from these merchants (and make a substantial profit on the spread). A debate raged in the 1980s about whether banks were violating the Banking Act of 1933 by underwriting commercial paper, since it is not classified as a bond by the SEC. Today commercial paper stands as the chief source of short-term financing for investment-grade issuers along with commercial loans and is still used extensively in the credit card industry.

Commercial Paper Markets
Commercial paper has traditionally been issued and traded among institutions in denominations of $100,000, with notes exceeding this amount available in $1,000 increments. Financial conglomerates such as investment firms, banks and mutual funds have historically been the chief buyers in this market, and a limited secondary market for this paper exists within the banking industry.

Wealthy individual investors have also historically been able to access commercial paper offerings through a private placement. The market took a severe hit when Lehman Brothers declared bankruptcy in 2008, and new rules and restrictions on the type and amount of commercial paper that could be held inside money market mutual funds were instituted as a result. Nevertheless, these instruments are becoming increasingly available to retail investors through online outlets sponsored by financial subsidiaries.

Commercial paper usually pays a higher rate of interest than guaranteed instruments, and the rates tend to rise along with national economic growth. Some financial institutions even allow their customers to write checks and make transfers online with commercial paper fund accounts in the same manner as a cash or money market account. However, investors need to be aware that these notes are not FDIC-insured. They are backed solely by the financial strength of the issuer in the same manner as any other type of corporate bond or debenture. Standard &Poor’s and Moody’s both rate commercial paper on a regular basis using the same rating system as for corporate bonds, with AAA and Aaa being their highest respective ratings. As with any other type of debt investment, commercial paper offerings with lower ratings pay correspondingly higher rates of interest. But there is no junk market available, as commercial paper can only be offered by investment-grade companies.

Rates and Pricing 
The Federal Reserve Board posts the current rates being paid by commercial paper on its website. The FRB also publishes the rates of AA-rated financial and non-financial commercial paper in its H.15 Statistical Release every Monday at 2:30pm. The data used for this publication are taken from the Depository Trust & Clearing Corporation (DTCC), and the rates are calculated based on the estimated relationship between the coupon rates of new issues and their maturities. Additional information on rates and trading volumes is available each day for the previous day’s activity. Figures for each outstanding commercial paper issue are also available at the close of business every Wednesday and on the last business day of every month.

The Bottom Line
Commercial paper is becoming increasingly available to retail investors from many outlets. Those who seek higher yields will likely find these instruments appealing due to their superior returns with modest risk.