Question : Case Study 7:
GHI Corporation, a well-established company, is exploring options to reduce its cost of borrowing.
Question :
GHI Corporation is looking to lower its borrowing costs. Which money market instrument can it use for short-term funding?
Option 1: Treasury bill
Option 2: Commercial paper
Option 3: Debenture
Option 4: Equity share
Correct Answer:
Commercial paper
Solution : The correct answer is (b) Commercial paper
To lower its borrowing costs and obtain short-term funding, GHI Corporation can use commercial paper. Commercial paper is a short-term debt instrument issued by corporations to raise funds for their short-term financing needs. It typically has a maturity of less than a year, making it suitable for short-term funding. Commercial paper often offers lower borrowing costs compared to other forms of debt due to its short-term nature and is an effective way for well-established companies like GHI Corporation to manage their short-term liquidity requirements at a lower cost. Treasury bills, another option mentioned, are also a money market instrument but may not provide as flexible terms or competitive rates for short-term corporate financing. Debentures and equity shares are long-term financing instruments and wouldn't be suitable for reducing short-term borrowing costs.
