CHAPTER 5
CREDIT RATINGS FOR BONDS
Time was when a country’s financial credibility was measured by the amount of gold in its vaults. Modern life has overtaken precious metal’s capacity to underpin the credit standing of countries, or that of companies or individuals. Nowadays we often rely on some independent outside body to be an ‘impartial’ judge of each borrower’s standing, and so the credit rating industry was established.
As we have already seen, the standing or creditworthiness of a country or company is crucial as it affects the rate of interest that will be applied to its securities. The assessment of its standing is made by credit rating agencies (CRAs), which, after a thorough investigation, issue a rating that is generally accepted ...
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