. Discuss the role credit rating agencies in the financial market. How useful are they?

Solutions

Expert Solution

Credit rating agencies play an important and significant role in the financial market. The credit rating agencies assess credit risk of specific debt securities and hence they play an important role in the financial market in general and in the bond market in particular by doing an independent evaluation with regards to creditworthiness of the debt securities. Credit rating agencies assess the debt securities of both corporations as well as governments.

The credit rating agencies are highly useful. These agencies enable the investors to depend and rely on the ratings given by them and hence investors are able to remove the constraint or disadvantage of non-availability of information to them. Banks also gain from the credit rating agencies as they are able to determine the risk premium to be charged on loans and bonds. Companies that are planning to issue a security rely on the services of credit rating agencies to rate their debt. Thus credit rating agencies are useful and on an overall basis they help in the development of financial markets.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

credit rating agencies

Describe the issue associated with credit rating agencies in the context of the global financial crisis. Given the issues described in question 1, do you think we need credit rating agencies going forward? Why (not)?

Are credit rating agencies to blame for U.S. financial crisis 2008? Why?

in your own words write about “credit rating agencies and the financial crisis” and support it...

in your own words write about “credit rating agencies and the financial crisis” and support it with real life example from any financial market or institution

(1) What are credit ratings? (2) Credit rating agencies such as Moody’s and Standard & Poor’s...

(1) What are credit ratings? (2) Credit rating agencies such as Moody’s and Standard & Poor’s use several factors to determine a company’s credit rating. Please list any three factors that can play a role in determining a company’s credit rating. (3) Compared to companies with a poor credit rating such as D, companies with good credit ratings such as AA or AAA have to pay higher or lower interest to borrow money? Explain your answer.

Aproposed corporate bond issue is usually subjected to a credit risk assessement by credit rating agencies....

Aproposed corporate bond issue is usually subjected to a credit risk assessement by credit rating agencies. The results of such an assessement provide a basis for potential investors to make decisions regarding the proposal. Some investors consider duration to be useful factor when deciding whether to invest in corporate bonds. however ,other investors do not consider duration to be that useful and as such,they rely solely on the work work of credit rating agencies. Such investors consider the information provided...

In your own words write a paragraph or two about “credit rating agencies “ such as...

In your own words write a paragraph or two about “credit rating agencies “ such as the importance of it , advantage and disadvantages , real life examples and etc ...

What is the role of rating agencies of fixed income securities? What is the highest possible...

What is the role of rating agencies of fixed income securities? What is the highest possible rating? What is the difference between investment grade and speculative grade debt?

What is the role of rating agencies of fixed income securities? What is the highest possible...

What is the role of rating agencies of fixed income securities? What is the highest possible rating? What is the difference between investment grade and speculative grade debt? Give three (3) specific examples of firms and/or municipalities with investment grade or speculative grade debt and include the rating as of Q3 2016 or Q4 2016 or Q1 2017. In your opinion, should the ratings agencies' be held accountable for their "opinions" of firms' fixed income securities?

What are the three major rating agencies? What are some criteria that the rating agencies use...

What are the three major rating agencies? What are some criteria that the rating agencies use when assigning ratings? What impact do bond ratings have on the cost of debt to the issuing firm?

Suppose the credit rating agencies have upgraded the ratings of a bond issued by XYZ Inc....

Suppose the credit rating agencies have upgraded the ratings of a bond issued by XYZ Inc. from speculative grade to investment grade. What effect will it have on the secondary market for this bond? What will happen to price and YTM? Use a secondary market diagram to explain your answer

Subjects