Rating agencies
How rating agencies work, explained in a videographic. VIDEOGRAPHIC
Transcript
00:00 [MUSIC PLAYING]
00:06 The job of a financial rating agency,
00:09 like Moody's, S&P Global, or Fitch,
00:12 is to give an evaluation or rating to an economic player,
00:16 in general, a country or a company.
00:18 In principle, apolitical, this assessment
00:21 is watched very closely by investors.
00:23 It informs them about the potential risk
00:26 they will be exposing themselves to if they lend money
00:29 to a particular borrower, and their capacity,
00:32 or even their willingness, to repay the debt.
00:35 After meetings with the financial officers
00:37 of the country or company concerned,
00:40 a meticulous study of their accounts and strategy,
00:43 and a meeting of the ratings committee,
00:45 the agency produces a rating, which
00:48 incorporates a number of factors,
00:50 notably economic and political.
00:53 The rating can be lowered for a number of reasons,
00:56 such as concern over economic growth prospects,
00:59 ineffectiveness of a cost-cutting plan,
01:02 or the non-payment of debt to creditors.
01:05 A downgraded rating generally results
01:08 in a rise in interest rates for the countries or companies.
01:11 This means the next time they go to borrow money,
01:14 it will cost them more.
01:17 [END PLAYBACK]
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