Bond rating agencies have invested significant sums of money in an effort to det
ID: 2788046 • Letter: B
Question
Bond rating agencies have invested significant sums of money in an effort to determine which quantitative and non-quantitative factors best predict bond defaults. Furthermore, some of the raters invest time and money to meet privately with corporate personnel to get nonpublic information that is used in assigning the issue’s bond rating. To recoup those costs, some bond rating agencies have tied their ratings to the purchase of additional services. Do you believe that this is an acceptable practice? Defend your position.
Explanation / Answer
As bond rating agencies need to independently analyse each and every bond they rate because ultimately it will affect investors decision because investors take decision of investing after considering rating of bond also with some other factors. So bond rating agencies practice to tie their ratings to the purachse of additional services is not acceptable.