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    Question

    A 'Credit Rating Agency' like CRISIL or ICRA primarily

    assesses:
    A The profitability of a company for equity investors. Correct Answer Incorrect Answer
    B The creditworthiness or default risk of a debt instrument/issuer. Correct Answer Incorrect Answer
    C The corporate governance structure of a company. Correct Answer Incorrect Answer
    D The fair market value of a company's assets. Correct Answer Incorrect Answer
    E The liquidity position of a company. Correct Answer Incorrect Answer

    Solution

    • Credit Rating Agencies (CRAs) are specialized institutions that evaluate the  credit risk  associated with a debt obligation (like a bond, debenture, or loan) or the entity issuing it (a company, bank, or sovereign). Their primary function is to provide an independent opinion on the  probability of timely payment of interest and principal  as per the terms of the contract. Ratings are expressed as symbols (e.g., AAA, AA, BBB, C, D). While they may consider profitability, governance, and assets in their analysis, the  core output is an assessment of default risk .

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