Question

Since firms issuing new securities pay to have these securities rated, the credit-rating agencies have incentive to ________ to attract more business.

Answer 1

Answer:

The correct answer is letter "A": give favorable ratings.

Explanation:

Credit-rating agencies are in charge of providing information to investors about firms' bonds and debt payments. Credit-rating agencies provide a score to recently-issued securities in exchange for a fee. Even if it is convenient for the agencies to rate the new assets high so firms are encouraged to select those firm services, they are well-regulated by the Credit Rating Agency Reform Act of 2006.

Three are the main credit-rating agencies in the U.S.: Moody's, Standard & Poor's and Fitch.