Financial Commercial Papers

1. What is the definition of financial commercial papers?
-Commercial paper consists of short-term, promissory notes issued by corporations.   The maturiy ranges up to 270 days, but average roughly 30 days. Many companies use Commercial paper to raise cash for current transactions, and “many find it to be a lower-cost alternative to bank loans.”   (Board of Govenors of the Federal Reserve System)
  2.   What type financial instruments are they?
  * A financial instrument is “A document (such as a check, draft, bond, share, bill of exchange, futures or options contract) that has a monetary value or represents a legally enforceable (binding) agreement between two or more parties regarding a right to payment of money. See also debt instrument, equity instrument, and financing instrument.” (Financial Instrument).   Based upon the definition of financial commercial papers, bonds would be the financial instrument being used.
  3. Compare the 3-month financial commercial paper rates and 3-month nonfinancial commercial paper rates from 1995 to 2005 (take monthly frequency). If there are any differences, what would be the source of the difference? Explain your answers clearly. Hint: Graphing the series over time may help you analyze them more easily.

  *   Listed below are financial commercial paper rates and nonfinancial commercial paper rater from 1/1/1997 through 12/31/2005 respectively.   Based the graphs listed below the difference is minimal.

  4.   What is the relationship between money supply and interest rates?

  * Money supply refers to how much capital exists in a market that an individual or business can use to engage in financial transactions. Interest rates are the “fees” associated with loans, whether to consumers or between commercial banks. In most economies, a central bank or government agency is responsible for watching over the money supply and interest rate and adjusting policies as necessary.” “Central banks can also influence...