- CFA Exams
- 2025 Level I
- Topic 6. Fixed Income
- Learning Module 4. Fixed-Income Markets for Corporate Issuers
- Subject 1. Short-Term Funding Alternatives
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Subject 1. Short-Term Funding Alternatives PDF Download
Both non-financial corporations and financial institutions rely on borrowed capital to support their short-term activities.
External Loan Financing
The short-term funding alternatives from bank sources:
External, Security-Based Financing
Commercial papers are short-term, unsecured promissory notes, generally issued by large corporations (unsecured corporate IOUs). They are cheaper than short-term business loans from commercial banks.
Many issuers roll over their paper on a regular basis. Issuers are required to secure backup lines of credit to minimize rollover risk.
Short-Term Funding Alternatives for Financial Institutions
Banks have different short-term funding sources. These include:
- Retail deposits: checking accounts, savings accounts, money market accounts, etc.
- Interbank funds: the market of loans and deposits between banks.
- Large denomination negotiable certificates of deposit: non-negotiable or negotiable CDs, large-denomination CDs or small denomination CDs.
Central bank funds: funds available from the central bank, or from other banks in the central bank funds market.
Most commercial papers are issued by financial institutions. It is a short-term, unsecured promissory note that is used by financial institutions as a source of short-term and bridge financing.
User Contributed Comments 1
User | Comment |
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garson | Rollover risk is a risk associated with the refinancing of debt. |
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