1. 2 Commercial paper is a short-term loan issued by major companies, also sold at a discount. It is unsecured, which means it is not guaranteed by the company’s assets.
1. 3 Certificates of deposit (or CDs) are short-or medium-term, interest-paying debt instruments – written promises to repay a debt. They are issued by banks to large depositors who can then trade them in the short-term money markets. They are known as time deposits, because the holder agrees to lend the money – by buying the certificate-for a specified amount of time.
Note: Nominal value is also called par value or face value.
C. Repos
Another very common form of financial contract is a repurchase agreement (or repo).
A repo is a combination of two transactions, as shown below. The dealer hopes to find a long-term buyer for the securities before repurchasing them.