ROLE OF INTERNATIONAL CREDIT RATING AGENCIES

• Country risk is the risk associated with cross border investment and is analyzed
from the foreign investors perspective.
• The country risk is the risk faced by foreign investors when investing in that
specific country as compared to the alternative of investing in other countries.
• There are many international credit rating agencies that measure country risk. A
few of them are given below:
- Bank of America World Information Services
- Business Environment Risk Intelligence (BERI) SA
- Control Risks Information Services (CRIS)
- Economist Intelligence Unit (EIU)
- Euromoney
- Institutional Investors
- Standard and Poors Rating Group
- Political Risk Services: International Country Risk Guide (ICRG)
- Political Risk Services: Coplin-O’Leary Rating System
- Moody’s Investor Services
• International credit rating agencies help rate the credit risk of a country and this
helps indicate the level of financial development and determine the cost of
borrowing for that particular country.
• Rating also helps to reflect a country’s willingness and ability to repay its
sovereign debts and determine a country’s equity market returns and valutations.
• A good rating helps countries gain access to global capital markets and
• Ratings help determine the cost of government borrowings, higher the rating,
lower the cost and vice versa.
• International credit rating agencies also indirectly influences the direction of the
flow of international finance.
• Thus, international credit rating agencies have a very strong and active role to
play since ratings affect a country’s cash flows, its cost of capital, its equity
markets and the ability of its firms to raise capital on favourable terms.