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FRM Part I · FRM Exam Part I · External and Internal Credit Ratings

Which statement best describes the difference between through-the-cycle (TTC) and point-in-time (PIT) rating approaches?

Through-the-cycle ratings are stable because they assess an obligor's long-run condition, including stress scenarios, while point-in-time ratings reflect current conditions and so change more with the economic cycle. Agencies typically use TTC; many internal systems are closer to PIT.

  1. ATTC ratings respond quickly to current economic conditions, while PIT ratings are stable across the cycle
  2. BTTC ratings are stable across the cycle because they focus on the obligor's long-run condition under stress, while PIT ratings use current conditions and vary more over timeCorrect
  3. CTTC ratings are used only by regulators, while PIT ratings are used only by rating agencies
  4. DTTC and PIT ratings differ only in the number of grades on the scale

Explanation

Agency ratings are generally TTC: they look through the cycle and assume stressed-scenario conditions, so migrations are less frequent. PIT ratings, common in internal systems, reflect current conditions and so are more procyclical. The first option reverses the two definitions.

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