We all know that credit rating agencies or CRAs are certain companies that assign credit ratings for issuers of debt obligations and instruments. A credit rating basically affects the issuer’s credit worthiness, thus procuring an effect on the interest rate as well.
But we already knew that stuff. Now, let’s address that question we’ve been thinking about CRAs for a long time. Are they really that important, or are they just overrated?
It is important, but it can be highly inconsistent. RON
Have you ever heard the company that named PhilRating? Well, that company is also unfamiliar to me. I haven’t thought that this company plays an important role in our economy. This company is the only domestic credit rating agency that is accredited by both the BSP and the SEC. Actually, there are just 3 traditional Global Rating Agencies, and these are Moody's, Standard & Poor's (S&P) and Fitch. So, what are the roles of credit rating agencies? In a financial market, credit rating agencies plays an important role. Credit rating agencies assign credit ratings for issuers of certain type of debt obligations as well as the debt instruments themselves. For investors, credit rating agencies increase the range of investment alternatives. Not only the investors needed the credit ratings. Government needs also the credit ratings for regulatory purposes. Credit rating agencies also plays an important role in structured financial transactions. Structured financial transactions may be seen as either a series of loans but with different distinctiveness. Credit ratings often determine the interest rate or price assigned to a particular security, based on the quality of loans or quality of assets contained within that grouping.
Despite the major role played by the credit rating agencies, they also face different criticisms. Just like what happened in Enron, the credit rating of Enron remained at investment grade four days before it went to bankruptcy. The criticism in here is the possible relationship between the company’s management and the credit rating agencies. Because of the different criticisms, many market participants no longer rely on the credit ratings given by these agencies. CHA
Credit rating agencies is any entity that assigns ratings for all companies, organizations and even government in issuing for debt instruments such as bonds. These bonds give the bondholder the right to receive interest and principal (at the end of the given term) from the issuer or the borrower.
In addition, credit rating is useful for all companies who want to measure their ability to pay their debts when become due. Investors are given opportunity to understand more the financial structure of the company in which it indicates how much assets has been financed by owners and by creditors This way, the company can forecast future borrowing needs that is necessary in improving their operations. JAM
What is credit rating? Credit Rating is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities. A credit rating is a simple number which many lenders use to determine whether or not they will give a loan or line of credit to an individual. One's credit rating is impacted by a number of factors, some of which are controllable, others of which are not.
Credit rating agencies are a big help to provide to investors and debtors because they provide them with information regarding the creditworthiness of a borrower like an individual, corporation, agency or even a sovereign government. They allow investors to make wiser decisions by benefitting them from the skills of professional risk assessment. They provide investors with quantitative analysis of entities to make comparison of their financial ratios. The investors then may look upon the liquidity of these entities to know if they have the ability to pay currently maturing debts or their solvency for their capacity to pay long-term debts.
They also help financial market participants to make assessment and understanding of the credit risk of take parties involve in the investing process. Trough this, individuals can easily access credit cards and loans while institutions can easily borrow money to banks without going into a long process of evaluation of each lenders as long as they have a good credit rating. Aside from the importance of Credit Rating Agencies mentioned above, they are also helpful to rebuilds investor confidence which we important or vital in the global capital markets because they protect different investors from risk of financial loss by providing them up to date information of credit rate. They provide improved efficiency in the credit markets and allow for more transparency or clearness in their dealings. If they can reduce risk financial loss to investors, then we can also prevent the risk of global crisis to happen because investors and debtors would not just invest or lend to anyone who has a high risk of financial loss. Like what happened in the United States when its banks and lending institutions lend money to almost anyone even to those who doesn’t have work and capacity to pay the money they borrowed which made US economy collapsed resulting to global crisis where everyone especially our OFW were greatly affected. PEY
What is credit rating? Credit Rating is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities. A credit rating is a simple number which many lenders use to determine whether or not they will give a loan or line of credit to an individual. One's credit rating is impacted by a number of factors, some of which are controllable, others of which are not.
Credit rating agencies are a big help to provide to investors and debtors because they provide them with information regarding the creditworthiness of a borrower like an individual, corporation, agency or even a sovereign government. They allow investors to make wiser decisions by benefitting them from the skills of professional risk assessment. They provide investors with quantitative analysis of entities to make comparison of their financial ratios. The investors then may look upon the liquidity of these entities to know if they have the ability to pay currently maturing debts or their solvency for their capacity to pay long-term debts.
They also help financial market participants to make assessment and understanding of the credit risk of take parties involve in the investing process. Trough this, individuals can easily access credit cards and loans while institutions can easily borrow money to banks without going into a long process of evaluation of each lenders as long as they have a good credit rating. Aside from the importance of Credit Rating Agencies mentioned above, they are also helpful to rebuilds investor confidence which we important or vital in the global capital markets because they protect different investors from risk of financial loss by providing them up to date information of credit rate. They provide improved efficiency in the credit markets and allow for more transparency or clearness in their dealings. If they can reduce risk financial loss to investors, then we can also prevent the risk of global crisis to happen because investors and debtors would not just invest or lend to anyone who has a high risk of financial loss. Like what happened in the United States when its banks and lending institutions lend money to almost anyone even to those who doesn’t have work and capacity to pay the money they borrowed which made US economy collapsed resulting to global crisis where everyone especially our OFW were greatly affected. PEY
The main activity of these CREDIT RATING AGENCIES is to issue opinions on the creditworthiness of a particular issuer or financial instrument, or the likelihood that it will honor its financial obligations. Credit ratings are divided up into categories, going from low-risk or investment grade to high-risk or speculative grade. They are based on the revenue stream and balance sheet of the issuer being rated, as well as past financial performance.
Aside from its main activity, there are also many credit rating agencies that provide other financial services such as "investment advice". Regarding to the impact of CREDIT RATINGS also known as DEBT RATINGS on the FINANCIAL MARKETS is that it carries considerable weight in financial markets in terms of both business practice and regulatory requirements.
CREDIT RATING AGENCIES provide a range of advice to the entities in the financial system, for example: Issuers and corporate borrowers rely on opinions issued by credit rating agencies to help them raise capital; Investors and lenders typically insist on being compensated for uncertainty and, when taking on debt, issuers pay for this uncertainty through higher interest rates. CRA opinions that help reduce uncertainty for investors also help reduce the cost of capital for issuers. Lenders and investors in fixed income securities, by contrast, use credit ratings in assessing the likely risks they face when lending money to or investing in the securities of a particular issuer and Institutional investors; fiduciary investors use credit ratings to help them allocate investments in a diversified risk portfolio.
CREDIT RATING AGENCIES play an important role in modern financial systems. Their ratings synthesise the vast array of information available about an issuer or borrower, its market and its economic environment, in order to give investors and lenders a better understanding of associated credit risks. CREDIT RATING AGENCIES have also been described as playing a 'gatekeeper' role in the market. LYN
Ratings are provided by credit rating agencies which specialize in evaluating credit risk. These credit agencies formulate and disseminate ratings opinions that are used by investors and other market participants who may consider credit risk in making their investment and business decisions.
Credit rating is an important component of capital markets development. Through credit rating, improved disclosure and transparency are achieved, thereby making the financial markets more efficient.
A credit rating is typically used to obtain funding from the public. Raising funds from the capital markets provides a company with improved financial flexibility and can allow it to negotiate for better terms and interest rates. Instead of taking a loan from a bank, these entities sometimes borrow money directly from investors by issuing bonds or notes. Investors purchase these debt securities expecting to receive interest plus the return of their principal, either when the bond matures or as periodic payments. Investors and other market participants may use the ratings as a screening device to match the relative credit risk of an issuer or individual debt issue with their own risk tolerance or credit risk guidelines in making investment and business decisions. AMA
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