Question

'Ganesh Steel Ltd.' is a large and creditworthy company manufacturing steel for the Indian market. It now wants to cater to the ***** market and decides to invest in new hi- tech machines. Since the investment is large, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost the company decides to tap the money market.

(a) Name and explain the money-market instrument the company can use for the above purpose.

(b) What is the duration for which the company can get funds through this instrument?

(c) State any other purpose for which this instrument can be used.

Answer 1

(a) Commercial Paper

It is an instrument issued by large and credit worthy companies to raise short-term funds at lower rates of interest than market rates. It is an unsecured, negotiable promissory note with a fixed maturity **.

(b) 15 days to one year.

(c) It can also be used for seasonal and working capital needs.