Question

If there were no such thing as commercial paper, real or virtual (electronic funds transfers), how would you pay your bills? How did merchants have to pay for their bills four hundred years ago?

You may also want to discuss the benefits and constraints of commercial papers vs. some other forms for paying for bills.

Answer 1

If there were no such thing as commercial paper, real or virtual (electronic funds transfers), how would you pay your bills? How did merchants have to pay for their bills four hundred years ago?

Answer-

If there is no such thing as commercial paper, I will have to pay the bills thru cash transactions everywhere. This becomes a tedious task and may invite lot of troubles for me. Its not with me alone but without the ability to pay and finance through commercial paper, the business world would be paralyzed. At bottom, negotiability is the means by which a person is empowered to transfer to another more than what the transferor himself possesses. In essence, this is the power to convey to a transferee the right in turn to convey clear title, when the original transferor does not have clear title.

Four hundred years ago, in an era before paper currency, the merchants had to make payment in coins or bullion that was awkward, especially for merchants who traveled great distances across national boundaries to attend the fairs at which most economic exchanges took place. During the English Civil War in the seventeenth century, merchants began to deposit cash with the goldsmiths, who lent it out at interest and issued the depositors promissory notes, the forerunner of bank notes.

You may also want to discuss the benefits and constraints of commercial papers vs. some other forms for paying for bills.

Answer-

Merits of Commercial Paper or Benefits of Commercial Paper

1. Technically, it provides more funds compared to other sources. The cost of commercial paper to the issuing firm is lower than the cost of commercial bank loans.
2. It is in freely transferable nature, therefore it has high liquidity also a wide range of maturity provide more flexibility.
3. A commercial paper is highly secure and does not contain any restrictive condition.
4. Companies can save their extra funds on commercial paper and also earn some good return on the same.
5. Commercial papers produce a continuing source of funds. This is because their maturity can be tailored to suit the needs of issuing firm. Again, commercial paper that matures can be repaid by selling the new commercial paper.

Limitations of Commercial Paper or Constraints of Commercial Paper.

1. Only financially secure and highly rated organizations can raise money through commercial papers. New and moderately rated organizations are not in a position to raise funds by this method.
2. The amount of money that we can raise through commercial paper is limited to the deductible liquidity available with the suppliers of funds at a particular time.
3. Commercial paper is an odd method of financing. As such if a firm is not in a position to redeem its paper due to financial difficulties, extending the duration of commercial paper is not possible.