Euro Commercial Paper

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Definition: Euro Commercial Paper

Euro Commercial Paper is an unsecured, short term, non underwritten loan, issued by a bank or a commercial organization in the international money markets, denominated in a currency different form the home currency of the bank or the organization. It differs from a commercial paper in the sense that an ECP is denominated in a foreign currency and is dealt in international markets, whereas a commercial paper is dealt within the home boundaries in the domestic currency.

Euro Commercial Paper is generally in the form of a promissory note, and is issued on a discount or on an interest bearing basis. The time period of maturity of the Euro Commercial paper ranges from a few days to one year, the most common maturity time period being 182 days. The minimum amount to be invested in Euro Commercial Paper is $500,000.

ECP is very advantageous as it provides a flexible alternative to short term finance and there is no collateral required and the interest rate charged is set at a very small margin, above than the market, for prime issuers. It can also be traded in a secondary market, which is not allowed in the case of US commercial paper.

Example: If a French corporation has issued short term bonds in the international money markets (denominated in Canadian dollars), to finance its business requirements, then that organization has issued Euro commercial paper.



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