What is the main role of credit rating agencies?
A. To provide loans to the government
B. To sell houses to investors
C. To rate the risk of financial products
D. To set interest rates
Answer (1)
The correct answer is letter C. To rate the risk of financial productsCredit rating agencies, like Moody’s and Standard & Poor’s, give scores to financial products to tell investors how risky they are. A high rating (AAA) means the investment is very safe, while a low rating means it's more likely to fail. During the Great Recession, some risky products like CDOs were given high ratings, and many people trusted them even though they were not safe. This mistake helped cause the financial collapse. Today, even in the Philippines, credit ratings affect how foreign investors decide to put money in our country.
