Financial Risk Manager Part 1
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A risk manager at a midsize bank is assessing the bank's methods for measuring the credit risk exposure of its loan portfolio. The manager notes the advantages and disadvantages of ratings produced by rating agencies. Which of the following conclusions should the manager make about a limitation of using agency ratings to assess credit risk?
A
Rating agencies only produce ratings for companies whose debt instruments are publicly traded.
B
Agency ratings are only reassessed when a company issues new debt or experiences a major credit-related event.
C
Financial institutions must pay fees for the rating services provided by rating agencies but these services are less affordable for smaller firms given their lower revenues.
D
Agency ratings of companies tend to be based on a narrow analysis limited to historical and forecasted financial information.