The commercial paper market in the U.S. has been copied abroad for many years now, though other countries have added their own special features. Among the leading national paper markets today are those of Japan, France, Canada, and Sweden. Euro-commercial paper market emerged during the middle of 1980s. Many U.S. corporations having difficulty borrowing in the domestic market, often because of declining credit quality, turned to the Euro-market. The investors in Euro-commercial paper are international banks, private corporations, and central banks.

The Euro-commercial market is considered as a viable, justifiable element of an efficient funding strategy. It appears to be coming into its own after years of playing the stepchild to the larger and more liquid U.S. commercial paper market. In the U.S., commercial paper can be placed by dealers or directly, with maturities not exceeding 9 months, and the commercial paper is rated. The Euro-commercial paper market is differ in some ways and is at present very similar to a short-term bank lending market. The high quality of Euro-commercial paper results in comparatively low investment yields. However, relative to other wholesale money market assets, Euro-commercial paper often has higher yields resulting from slightly higher risk and lower liquidity.

Euro-commercial paper is an unsecured, short-term loan issued by a bank or corporation in the international debt capital markets. It is an approach to short-term corporate finance which allows the investor to diversify a short-term asset portfolio with prime quality and high-yielding negotiable instruments and provides issuers with new sources of short-term finance for working capital. It is short-term notes with maturities up to 360 days that are issued by companies in international money market. The notes are usually denominated in dollars and are bearer instruments. Generally, interest rates on Euro-commercial paper are lower than the interest rates on corporate loans extended by banks. The effective rate on many commercial loans granted by banks is even higher than the quoted prime rate. The larger amounts of funds may be borrowed more conveniently through the Euro-commercial paper market than from other sources, particularly bank loans.

Citation:

Deborah Loades. Corporate Finance. London: Oct 2000. p. 30

Peter S. Rose. Money and Capital Markets. New York: 2008 p. 337