Certified Management Accountant Practice Exam 2025 - Free CMA Practice Questions and Study Guide

A company might choose to utilize commercial paper primarily because it serves as an effective tool for addressing short-term liquidity needs. Commercial paper is an unsecured, short-term debt instrument that corporations issue to finance their immediate operational costs, such as accounts payable, payroll, and inventory purchases.

The key benefit of commercial paper lies in its ability to provide quick access to funds at typically lower interest rates than alternative short-term borrowing options, such as bank loans. This can be especially advantageous for companies needing to manage cash flow fluctuations or bridge gaps between receivables. Issuing commercial paper allows firms to respond swiftly to financial pressures without the lengthy negotiation processes associated with other forms of credit.

In contrast to the options involving more expensive financing methods or long-term commitments (which are not the principal functions of commercial paper), the focus on short-term liquidity clearly highlights the strategic use of commercial paper in corporate finance. Additionally, the concept of guaranteeing stock price performance does not relate to the operational purposes of commercial paper at all, underscoring its specific role within financial management.