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.


Hence, this concludes the definition of Euro Commercial Paper along with its overview.

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