Ratings agencies have an incentive to inflate ratings because they are paid by the:
A)Federal Reserve.
B)Treasury.
C)Security and Exchange Commission.
D)security issuer.

Question

Quizplus · Accepted Answer

Ratings agencies, such as Moody's and Standard & Poor's, are paid by the security issuer to assign a credit rating to their securities. This creates a conflict of interest, as higher ratings will attract more investors, increasing the issuer's revenue and potentially leading to more business for the ratings agency. Therefore, there is an incentive for ratings agencies to inflate ratings in order to maintain a good relationship with their clients.

Ratings Agencies Have an Incentive to Inflate Ratings Because They