What does it mean when a country’s credit rating is being downgraded by rating agencies?
What is this whole rating thing all about? Why do countries have ratings? And what is the purpose of it?
Ratings is how credit worthy a organization is. In this case a country, but it is also used for corporations. It is similar to your credit score.
The reason a country, or an organization has a credit rating is to give investors, or loaners an idea of how capable the organization is to pay back the debt.
If the US gets downgraded to a Bbb credit rating it is basically like saying that their is a greater risk that the US can no longer pay its debt. It is like your credit score going down.
Government default on their debts just like homeowners and companies. It means their bonds are considered to be risky so they will have to pay a higher interest rate to borrow.
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A country that has a high credit rating by rating agencies means that it can borrow and pay its interest payments promptly and the loan repayment on maturity.
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Ratings is how credit worthy a organization is. In this case a country, but it is also used for corporations. It is similar to your credit score.
The reason a country, or an organization has a credit rating is to give investors, or loaners an idea of how capable the organization is to pay back the debt.
If the US gets downgraded to a Bbb credit rating it is basically like saying that their is a greater risk that the US can no longer pay its debt. It is like your credit score going down.
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See 3d answer. Let me add this: and therefore that their debt in the secondary markets looses value.For example: Mexico’s debt: 0.65 c to the dollar. Peru: 0.25c to the dollar. Haiti: 0.05 c to the dollar or the price of recycling paper whatever is cheaper.
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The purpose of it is to estimate risk premium. It’s the same reason you might charge higher interest on a loan to someone who has a tenuous job than someone who can’t be fired.
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