What Are The Examples Of Investment Credit Instruments?


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Rebecca Hunt answered
There are different kinds of credit instruments each with its own features and advantages: Working capital, cash credit for meeting capital expenditure, negotiable instruments, credit derivatives, and others.

  • Working capital: This is the type of credit used for working capital requirements, and is supplied by providing different credit modes such as overdraft, cash credit, and others. For working capital finance, security is offered in the form of current assets such as in debt books, receivables, and inventory.
  • Cash Credit: One of the most popular ways that people can finance the working capital requirements of a company. This facility allows a borrower to withdraw money from a bank as much as the sanctioned credit limit will allow. He can also withdraw regularly as long as the requirements are capable of fulfilling his needs to withdraw and therefore he will repay through depositing any excess funds into his cash credit account. This kind of credit doesn't require a commitment charge although interest is paid depending on the amount used by the borrower.
  • Working capital demand loan: Under this type of credit, a borrower may sometimes have a need for temporary extensions in the surplus sanctioned limit of the bank because of unforeseen circumstances. The bank can therefore accommodate their needs through demand loans or a non-operable cash credit account. This kind of loan is referred to as a working capital demand loan. A higher rate of interest is required to be paid by the borrower because of the additional credit required.
  • Overdraft: This is similar to the cash credit arrangement although its features allow the borrower withdraw excess funds in his account as long as it's up to a specific limit within a period stipulated by the bank.
  • Commercial Paper: This is an important type of credit instrument which helps the borrower raise short term funds. The Commercial Paper refers to the Promissory Note issued by the bank and other financial firms which help the buyer raise their funds.

These and more are all important types of credit facilities used by banks and other financial institutions.

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