Page 26 - Introduction To Investment Management

investor cash in or redeem their CD, they will receive the money originally invested plus
interest. CD is one of the safest savings options. A CD bought through a federally insured

bank is insured up to $250,000.

C. Commercial Paper

The large companies (blue chip Company) will usually produce short-term debt
notes called commercial paper as collateral for loans to avoid making loans directly from

financial companies. Commercial paper is a note which will be supported by any bank to
ensure the company which issued the note will be able to make payment on the maturity

of the promissory note.

Usually, the maturity of commercial paper is 270 days while the promissory notes
will have longer maturity period and it should register at the Securities Commission.

Nevertheless, the promissory notes with more than 270 days maturity period are rarely
issued. The commercial paper is one of the most reliable financial assets because of their

short maturity which allows investors to evaluate the performance of its issuer.

International rating companies like Moody's Investor Services, Standard & Poor's
Corporation, Finch, and Solomon Brothers Investor Services are those who are graded and

rated the level of trade paper which available in the market. Rating is very important

because it acts as an indicator on the performance of the companies issuing the
promissory notes.

D. Banker's Acceptance

The customer of the bank will order the bank to make a specified sum of money

on a specified date to a named person or the bearer of the draft. Usually, the customer
will order the bank to pay the banker’s acceptance at a future date, typically within six

months. At this stage, it is like a post-dated check. When the bank endorses the order for
payment as ‘accepted’, it becomes a liability to the bank to pay the holder of the

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