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Discuss the role of the credit rating agencies in the financial system

Discuss the role of the credit rating agencies in the financial system
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Credit rating agencies gives credit rating to companies. The credit ratings are based on thorough analysis of the company's financial statements and debt repayment capabilities. Companies with high credit ratings are safe as the chances of default are less. So they can issue bond with lower premium. Credit ratings offered by rating agencies help lenders across globe. The riskiness of a country or company can be best judged by the credit rating.Ratings provide an idea about the credit riskiness. Financial system runs on trust. Investors are willing to take greater risk if the return is high, so credit rating helps investors to understand the risky companies.

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