This lesson covers the short-term funding instruments available to an organisation and the role of the money markets.

4.1 Bank Borrowing Solutions
Short-term bank borrowing is a key source of liquidity. The ACT syllabus identifies several key products:

• Overdrafts: A flexible, uncommitted facility allowing the company to draw beyond its account balance up to an agreed limit .

• Committed Facilities: A line of credit where the bank is legally obligated to provide funds up to a certain limit for a defined period. Unlike an overdraft, a facility fee is often charged on the undrawn portion .

• Money Market Lines: Short-term borrowing directly in the wholesale money market.

4.2 Money Markets and Commercial Paper
The money market is the market for short-term debt instruments, typically with maturities of less than one year. Key instruments include:

• Commercial Paper (CP): An unsecured promissory note issued by a corporation to raise short-term funding . It is a key alternative to bank borrowing and is often “cheaper than bank debt” .

• Certificates of Deposit (CDs): Time deposits with a bank that offer a fixed interest rate.

• Repurchase Agreements (Repos): A short-term borrowing instrument where the borrower sells securities to the lender with an agreement to repurchase them later.