Rating agencies

543 mots 3 pages
English paper

Knowing that I had no idea what to write about, I have decided to choose something quite original, just to go out of the beaten tracks for a while. Indeed, this paper is dealing with rating agencies. First of all, it will be explained what rating agencies are and what are their aims. Then, we will focus on the way they interact with the global financial world. Their methods and criteria will be discussed in a third part. It will finally be questioned whether those agencies really benefit to every company, every country or not. First of all, let us explained what rating agencies are: those are independent companies that assign credit ratings to issuers of debt obligations. Those issuers can be companies, states, non-profit organizations and so on. The aim of rating agencies is to assess the issuer’s credit worthiness. Issuers are assessed according to the “Bâle II” standards that enable a better apprehension of credit and counterparty risk. This mark stands as the main criterion in the estimation of the risk that an investment involves. Taking it into account is compulsory for institutional borrowers like pension funds or territorial collectivities. Rating has several advantages: as far as the investors are concerned, they are provided an independent measurement of the relative credit risk. For the company, it is a way to put itself forward. For both of them, rating implies directly lower costs, given that the better the rate is, the lower the interest rates. Hence, it provides the market a growth in efficiency; it increases the total supply of risk capital and also opens the capital market to small borrowers as hospitals, start-ups and universities. What about the methods? It must first be distinguished credit scoring and rating: they are both aimed at assessing the counterparty risk; however rating relies on a financial audit whereas credit scoring uses expert systems like artificial intelligence. The mark that is given by a rating agency is on a

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