Distinguish between the following: (iii) Commercial Paper and Inter Corporate Deposit.

Following are the differences between Commercial Paper and Inter Corporate Deposits: Commercial Paper (CP): It is an unsecured money market instrument issued in the form of a promissory note to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors. Companies, Primary Dealers and financial institutions (FIs) are permitted to raise short-term resources under the umbrella limit fixed by the Reserve Bank of India (RBI) are eligible to issue Commercial Paper. A company would be eligible to issue Commercial Paper provided: the tangible net worth of the company, as per the latest audited balance sheet, is not less than ₹ 4 crores; the company has been sanctioned working capital limit by bank/s or FIs; and the borrowal account of the company is classified as a Standard Asset by the financing bank/ institution. Inter Corporate Deposits (ICD): Corporates also have access to another market called the Inter Corporate Deposits (ICD) market. An ICD is an unsecured loan extended by one corporate to another. Existing mainly as a refuge for low rated corporates, this market allows corporates with surplus funds to lend to other corporates facing shortage of funds. Another aspect of this market is that the better-rated corporates can borrow from the banking system and lend in this market to make speculative profits. As the cost of funds for a corporate is much higher than that of a bank, thus, the rates in this market are higher than those in the other markets. ICDs are unsecured, and hence the risk inherent is high. The ICD market is an unorganised market with very less information available publicly about transaction details.