The conflict of interest in credit-rating agencies arises because ________ pay to have securities rated and,as a result,the agencies' ratings may be biased ________.
A) security issuers; downward
B) security issuers; upward
C) investors; downward
D) regulators; upward

Question

Quizplus · Accepted Answer

Credit-rating agencies are paid by security issuers to rate their securities. This gives rise to a conflict of interest because there is a possibility that the ratings may be biased upwards in order to maintain a good relationship with the issuers and secure future business. Therefore, choice B, where biased ratings are directed upwards, is the best choice.

The Conflict of Interest in Credit-Rating Agencies Arises Because ________