Final answer:
Commercial paper is a short-term, unsecured financing instrument issued by corporations with high credit ratings. It contrasts with high-yield or junk bonds, which offer high interest rates to compensate for a higher default risk.
Step-by-step explanation:
The financial instruments described are called commercial paper. These are short-term, unsecured notes payable, which are issued in large denominations by corporations that typically have high credit ratings. Commercial paper is often used for financing short-term liabilities or funding immediate operational needs. It is a form of borrowing that is less formal than a bank loan and does not typically require collateral.
Unlike high-yield bonds or junk bonds, commercial paper is issued by corporations with high credit ratings and generally presents lower risk. High-yield bonds offer relatively high interest rates to compensate for their higher chance of default. Large corporations may issue these risky bonds due to the higher cost of borrowing, which is justified by their investment plans or corporate growth strategies. However, with regard to commercial paper, the risk is comparatively lower, and the rates are usually more favorable to the issuer.