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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┬а credit risk ┬аassociated 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┬а probability of timely payment of interest and principal ┬аas 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┬а core output is an assessment of default risk .

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