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Credit Rating – Ten Questions Quiz !

Credit Rating

While accessing offer letter or prospectus of security market instruments, many times we see a rating in form of AAA BB(for an example). The obvious question can come in our mind is that what is this and why it is here ?

Credit Rating is a symbolic indication of the current opinion regarding the relative capability of a corporate entity to service its debt obligations in time with reference to the instrument being rated. In general it is an assessment by a rating agency for service of debt obligation in relation to concerned security.
Credit rating agency establishes a link between risk and return.Investor or other concerned person can use the rating to assess the risk level and difference between his expected return and offered rate of return.
Why it is there ? The answer of this question is statutory obligation for specific securities. In some cases, issuer disclose the rating as it enhance the trust of the investor(If rating is good).The rating for prescribed securities is done by organisation registered with SEBI.
Here is a quiz to test your knowledge on Credit Rating!

 

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