Private Rating Agencies Evaluate and Then Grade the Default Risk

question 98

Multiple Choice

Private rating agencies evaluate and then grade the default risk of bonds to address which of the following problems?

• A) the government's inability to judge default risks
• B) companies hiding their finances
• C) bondholders not having access to companies' finances
• D) individuals' inability to easily judge default risks
• E) too many investors picking risky bonds for their portfolios

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Definitions:

Excess Demand

A situation where the quantity of a good or service demanded surpasses the quantity supplied at the current price.

Beer Bottling Facilities

Industrial setups where beer is prepared, bottled, and packaged for distribution and sale.

Equilibrium Price

The charge for which the desired quantity of a good or service is identical to the quantity that is supplied, resulting in a balanced market situation.

Inferior Good

An item whose demand falls when consumer income rises, contrasting with normal goods where demand increases with income.