Credit rating – global impasse
In the modern global financial market investment safety is extremely significant. Due to the scope and diversity of risk in the international financial market there is a need for a universal measure of investment risk level which would allow to compare financial creditability of different subjects from different national financial markets. The measure should not only be universal, but also cheap, fast and adequate.
From the investors’ point of view, credit rating agencies are helpful because they assess the risk level for investors instead of them, and, moreover, they do it for free. Another important fact is that credit rating agencies mitigate investment risk from the worldwide perspective. Therefore, credit rating is potentially a very useful tool but it does not exempt investors from their own risk estimation.
The basic condition for credit rating existence is investors’ trust. Without that trust issuers will not order credit rating. In consequence, inappropriate rating can result in market share loss for a given agency. If many agencies operate in the market then market itself will verify credit rating usefulness (with professionalism and objectivity) through a level of demand for different agencies services.
Due to the daily use of credit rating in the process of investing on the market and due to credit rating implementation in regulations related to investment safety in the market, credit rating is used as a routine and without any criticism. However, credit rating is not a perfect tool and the circumstances in which it exists are not perfect. We have to take it into consideration. At the same time, the imperfections influence both investors as well as issuers (from microeconomic perspective), and also the whole economy (from macroeconomic perspective).
With credit rating several controversial factors are related which will be describe in article. In consequence, credit rating is a tool to reduce investment risk, and at the same time it generates additional risk.
The aim of the elaboration is to draw attention to selected aspects of credit rating, especially from the macroeconomic point of view as an additional voice in the current discussion.
Data / Methods
In the article, comparison method and case study were used.
Conclusion
The article deals with credit rating and its present importance for the financial market. On that basis, the current impasse concerning credit rating will be analyzed.