Question : Statement 1: Commercial paper is a widely used instrument for long-term financing by companies.
Statement 2: Commercial paper offers high interest rates compared to other money market instruments.
Option 1: Statement 1 is true, and statement 2 is true.
Option 2: Statement 1 is true, but statement 2 is false.
Option 3: Statement 1 is false, and statement 2 is true.
Option 4: Statement 1 is false, and statement 2 is false.
Correct Answer: Statement 1 is false, and statement 2 is false.
Solution : The correct answer is (d) Statement 1 is false, and statement 2 is false.
Statement 1 is false. Commercial paper is typically a short-term debt instrument used by companies to raise funds for their short-term financing needs, not long-term financing.
Statement 2 is false: Commercial paper typically offers lower interest rates than other money market instruments, such as certificates of deposit (CDs) and Treasury bills. This is because commercial paper is considered to be a riskier investment, as it is unsecured (meaning that it is not backed by any collateral).
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