FRM Part I · FRM Exam Part I · External and Internal Credit Ratings
A risk analyst compares the rating scales of S&P Global Ratings and Moody's. Which of the following pairs represents the lowest rating category that is still considered investment grade on each agency's scale?
The lowest investment-grade ratings are BBB- on the S&P scale and Baa3 on Moody's scale. One notch lower, BB+ for S&P and Ba1 for Moody's, is speculative grade, often called high yield or junk.
- AS&P BBB- and Moody's Baa3Correct
- BS&P BB+ and Moody's Ba1
- CS&P BBB and Moody's Baa1
- DS&P BBB- and Moody's Baa1
Explanation
Investment grade ends at BBB- for S&P (and Fitch) and at Baa3 for Moody's. BB+ and Ba1 are the highest speculative-grade ratings, so they are not investment grade. Baa1 is three notches above Baa3, so pairing it with BBB- mismatches the scale.
Did you get it right without looking?
One question tells you little. A timed set on External and Internal Credit Ratings shows your real accuracy, how long you take and where you lose marks.
More External and Internal Credit Ratings questions
- A bank's internal grade B has a TTC one-year default probability of 2.0%. The bank's PIT model shows that, in the current expansion, grade B…
- A bank's rating grade B was assigned a one-year PD of 4.0%. During the year 500 obligors in grade B were observed and 30 defaulted. Assuming…
- After a sovereign downgrade, many institutional investors are forced to sell the bonds because their mandates and regulations restrict holdi…
- A validation team computes the Accuracy Ratio (AR) of two rating models on the same portfolio. Model X has AR of 0.62 and Model Y has AR of …
- A validation report notes that a bank's internal rating system has a high accuracy ratio on its development sample but a much lower accuracy…
- A bank's internal rating system is described as 'through-the-cycle' (TTC). Which of the following best describes the expected behavior of it…