Financial Risk Manager Part 1

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Q-96. Which of the following statements about credit ratings is correct?

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A through-the-cycle rating tries to capture the average creditworthiness of a firm over a period of several years and is therefore less likely to change in response to a cyclical decline in overall economic conditions

Internal ratings tend to be through-the-cycle while external agency ratings tend to be point-in-time

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An outlook indicates a relatively short-term change is anticipated (usually within 3 months), while placing a rating on a watchlist indicates the most likely direction of a rating over the medium term

Banks and other financial institutions typically base their internal ratings on a single factor such as financial ratios