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To Determine:
During 2008, the difference in the yield between three-month AA-rated financial commercial paper and three months AA-rated nonfinancial commercial paper steadily increased from its usual level of close to zero, spiking to over a full percentage point at its peak in October 2008. What explains this sudden increase?
Concept Introduction:
There was a yield spread between the two and the risk of financial company investment was more. An unsecured, short-term debt issued for the financing of account receivable is called commercial paper. It is used to meet short-term liabilities. It matures in between 270 days. They are used at discount from the face value and reflects current market interest rates.
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Chapter 6 Solutions
Pearson eText Economics of Money, Banking and Financial Markets, The, Business School Edition -- Instant Access (Pearson+)
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