CCM Credit Scoring & Rating Systems 2

Question 1

What is Standard & Poor's lowest investment-grade credit rating?

Accepted Answer

BBB-

Answer

AA-

Answer

A-

Answer

BB+

Question 2

What does a 'CreditWatch' or 'review for possible downgrade' designation from a rating agency indicate?

Accepted Answer

The agency is actively monitoring the issuer for a potential near-term rating change

Answer

The company has already defaulted on its debt obligations

Answer

The company is under investigation by the SEC for accounting fraud

Answer

A credit bureau has placed a fraud alert on the company's file

Question 3

The NACM (National Association of Credit Management) Credit Risk Score is based primarily on:

Accepted Answer

Trade payment experiences reported by member companies

Answer

Stock market performance and equity valuations

Answer

Federal Reserve monetary policy indicators

Answer

International export volume and trade deficit statistics

Question 4

What is a 'split rating' in credit analysis?

Accepted Answer

When a company's domestic credit rating differs from its foreign currency rating

Answer

When a rating agency assigns separate short-term and long-term ratings to one issuer

Answer

When two or more major rating agencies assign different ratings to the same debt issuance

Answer

When a single agency rates the issuer's corporate family separately from a specific bond

Question 5

Moody's rating that is roughly equivalent to Standard & Poor's 'BBB' is:

Accepted Answer

Baa2

Answer

Ba2

Answer

B2

Answer

Aaa

Question 6

What is the primary regulatory significance of the investment-grade versus speculative-grade boundary?

Accepted Answer

Many institutional investors and banking regulations restrict or prohibit holdings rated below investment grade

Answer

It determines the corporate income tax rate applied to bond interest

Answer

It triggers mandatory credit insurance purchase requirements for bond issuers

Answer

It determines whether a public company must file quarterly financial statements with the SEC

Question 7

Which of the following best describes a 'through-the-cycle' credit rating approach?

Accepted Answer

Ratings are set to reflect expected creditworthiness across an entire economic cycle, not just current conditions

Answer

Ratings are updated every quarter based on current financial performance

Answer

Ratings are adjusted daily in response to equity market price movements

Answer

Ratings are issued only at the beginning and end of each business cycle