Why should we be skeptical about the ratings that rating agencies produce? Identify 3 the three accurate responses: Barriers to entry prevent new rating agencies with better models from gaining market power, thus insulating existing agencies from having to compete on the accuracy of their ratings. To give a low rating to a security, the rating agent must get approval from the agency's board of directors. Rating agencies have other (non-rating-related) business with the same companies they rate. Rating agencies are paid by the companies they rate and compete with each other for business.
Why should we be skeptical about the ratings that rating agencies produce? Identify 3 the three accurate responses: Barriers to entry prevent new rating agencies with better models from gaining market power, thus insulating existing agencies from having to compete on the accuracy of their ratings. To give a low rating to a security, the rating agent must get approval from the agency's board of directors. Rating agencies have other (non-rating-related) business with the same companies they rate. Rating agencies are paid by the companies they rate and compete with each other for business.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Why should we be skeptical about the ratings that rating agencies produce? Identify 3 the three accurate responses:
Barriers to entry prevent new rating agencies with better models from gaining market power, thus insulating existing agencies from having to compete on the accuracy
of their ratings.
To give a low rating to a security, the rating agent must get approval from the agency's board of directors.
Rating agencies have other (non-rating-related) business with the same companies they rate.
Rating agencies are paid by the companies they rate and compete with each other for business.
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