Companies use commercial paper to smooth out their near-term finances. These financial instruments represent short-term loans.
Need money for payroll next week, but still waiting for the check from your biggest customer to clear? Float some commercial paper. It will let you make that payroll...and once your revenues roll in, you can pay off the paper.
Two-name paper is a nickname for a particular type of this commercial paper. It represents a form of financial instrument known as a "trade acceptance." These work like IOUs. Like, "Give me 100 tons of salad oil today, and I'll give you $50,000 next week." These trade acceptances can be sold. You don't want to wait for the $50,000, so you sell it to someone else for $49,000. You get certain cash. They get a $1,000 profit for having the patience to wait a week for the payment.
For this to work, the instrument needs two signatures: the issuer (the party who owes the money) and the receiver (the party getting paid). Hence the name "two-name paper." It has both these required signatures.
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Finance: What is a Money Market Fund?80 Views
finance a la shmoop. what is a money market fund? isn't it a strange concept
to think about going to a market to buy money? [man walks through grocery store]
well yeah it's strange but the practice exists and it's a huge multi trillion
dollar market today. the key word here is money and not investment. why such a big
diff? well because the notion of investing implies duration. that is when
you invest in a nice fixer-upper home or a tractor distribution company or shares
in a fat dividend-paying bank you're investing for presumably a long time [people stand in line]
like years maybe decades maybe centuries if you can find the right miracle pill.
but here we're talking about money like the stuff you can buy candy with. so it's
short term not long and a money market fund basically comprises many series of
pretty safe bonds that are all coming due in the next 30 to 90 days. sometimes [pie chart]
longer than that sometimes shorter but generally in the very near future. so why
would you care about a money market fund? well because it pays you slightly more
interest on your money than say a bank checking account. and lots of people in
corporations need cash just sitting around to pay their bills, so there are
tons of money market funds out there available and that's the gist of a money
market fund. we're sure you'll have plenty of experience with them by the
time you hit your sixth hundredth birthday day [people cheer and hold birthday cake]