ratings provided by international agencies are considered more reliable and

Ratings provided by international agencies are

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ratings provided by international agencies are considered more reliable and accurate since they have access to a lot of information that is not publicly available, so yes, I would expect them to rely on ratings even if they weren’t required to, it benefits them for the most part Hedge funds would rely on them to some extent, but not solely- it would primarily use its in-house research department 4. Why have repeated attempts to open the ‘club’ of agencies been so unsuccessful? Would ratings be more reliable if the attempts did succeed? Because government intervention has just created more “zombies”- they do so by having regulations that make it harder for firms to compete (additional reading) Yes, rating agencies are thriving but this is because they can charge higher prices Takes away competition from the three firms (that have failed to provide accurate credit ratings several times) by requiring a firm to qualify as an NRSRO- high cost and difficult
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I think they would be more reliable. You would have more firms in the credit rating industry. This would allow more accurate ratings to occur because one credit rating companies rating of a firm could be checked by another credit rating firm o It could also allow for closer monitoring of the companies being rate, credit firms could be responsible for certain counties or sectors but then again this would likely not be profitable 5. Does requiring financial firms to rely on credit ratings make the financial system more or less stable? Why is it unlikely that the requirement will end? NOOOOO, government regulations never do It could go either way. o Less, if the credit ratings are inaccurate yet they are required to rely on them then financial firms, the opportunity for poor investments will increase o If the credit rating industry gains more stability and builds relationships with companies to get the full truth of their financial standings then this could be good because the credit ratings would be more accurate and thus better investments would take place C. Read “Australia’s Tough-Minded Bankruptcies May Serve as a Role Model” (Item 14.2) and answer the following: 1. How does Australia’s bankruptcy law differ from that of the U.S.? Favors liquidation over restructuring. Strict timetables to pay back creditors (6 months to restructure), and if you cannot company must liquidate. Liquidation must be led by an outside administrator. More creditor friendly, less debtor friendly. 2. What are the pluses and minuses of a weaker bankruptcy law? Who benefits? Who loses? Plus: failure doesn’t necessarily mean the business was a failure, it could have been because issues beyond the businesses control. Companies are also worth more to creditors as operating entities, not liquidated entities.
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