Question

The Risk Rating for countries and corporations is a quite important index to be used by different stakeholders, discuss this importance and give three examples for the users of this rating index (three stakeholders).

Answer 1

The risk rating for the countries and corporation is an important index because the risk rating are often assigned by the credit rating agencies and these risk rating will be incorporating all such present risk as well as future is associated with those securities and countries.

Importance of these credit rating should be that it would be helpful in determination of the overall risk and it will be helpful in proactive judgement of various securities and it will be also helpful in determination of the risk tolerance and the risk reference and cost of financial distress.

These will be providing a a better idea to various stakeholders in order to engage with the company such as-

A. Bondholders-bondholders are those stakeholders who are treated as creditors the company and they would often be wanting a higher credit rating assigned to the overall organisation and it will help them in order to to stay secured about their debt. A company who will be having a higher credit rating will be having a higher security to the payment of debt related to Bond holders.

B. Government -government will also be sceptical of those companies who are not able to fulfill their debt obligation regularly and they will be engaging into various kinds of malpractices and window dressing so government should also be trying to keep eye on them.

C. Shareholders-shareholders will be having the last claim or residual claim on the Assets of the company so they will be always investing into such company who have a high assurance and higher credit rating because there risk would be lower and their capital would be protected.