The correct answer is option 2. Explanation & Key Takeaways: Commercial Paper: • Commercial paper is an unsecured, short-period debt tool issued by a company, usually for finance and inventories and temporary liabilities. • The maturities in this paper do not last longer than 270 days. • These papers are like a promissory note allotted at a huge cost and exchangeable between the All-India Financial Institutions (FIs) and Primary Dealers (PDs). • Most of the commercial paper investors are from the banking sector, individuals, corporate and incorporated companies, Non-Resident Indians (NRIs) Foreign Institutional Investors (FIIs), etc. • However, FII can only invest according to the limit outlined by the Securities and Exchange Board of India (SEBI) • In India, commercial paper is a short-term unsecured promissory note issued by the Primary Dealers (PDs) and the All-India Financial Institutions (FIs) for a short period of 90 days to 364 days. Features of Commercial Paper: • It is a short-term money market tool, including a promissory note and a set maturity. • It acts as an evidence certificate of unsecured debt. • It is subscribed at a discount rate and can be issued in an interest-bearing application. • The issuer guarantees the buyer to pay a fixed amount in the future in terms of liquid cash and no assets. • A company can directly issue the paper to investors, or it can be done through banks/dealer banks. Related Concepts: Treasury Bills (T-Bills): • Treasury Bills (T-Bills) are government bonds or debt securities with a maturity of less than a year. • T- bills are issued to meet short-term mismatches in receipts and expenditures. A certificate of deposit (CD): • A certificate of deposit (CD) is a savings certificate with a fixed maturity date and specified fixed interest rate that can be issued in any denomination aside from minimum investment requirements. • A CD restricts access to the funds until the maturity date of the investment. CDs are generally issued by commercial banks. Repo: • A repurchase agreement, or repo for short, is a type of short-term loan used in the money markets, whereby the seller of a security agrees to buy it back at a specified price and time. • The seller pays an interest rate, called the repo rate when buying back the securities.