Question

Describe the basic principles of credit analysis.

How does credit analysis differ between municipal issuers and corporate issuers?

How does credits analysis differ between corporate issuers and sovereign issuers?

How does credits analysis differ between municipal issuers and sovereign issuers?

How does credits analysis differ for ABS issuers? This answer can be brief since we have not discussed securitization in detail.

Discuss the basics of Altman’s Z-score.

Answer 1

Answer 1)

The basic principles of credit analysis

There are three principle of credit analysis which are mentioned below:

1.Downgrade risk: This risk happens when credit rating agencies like S&P or Moody's downgrade the credit worthiness of a security or company. It will lead to decrease in value of fixed income security.

2. Default risk: This is the risk when borrower fails to make an mandatory interest payments on time. It means borrower is facing difficulty running business. It leads to decrease in the value of fixed income security

3. Credit spread risk: Risk arises when spread of fixed income security widen against the benchmark yield. It happens due to change in market conditions.

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