and why do they even need ratings?
Countries are just like Cities and Corporations. They offer financial instruments (stock, bonds, etc). to finance projects. For instance, if a school district wants to build a new stadium, they sell bonds to finance it. US Savings Bonds are bonds sold by the US government. Countries sell treasury bonds to finance their debt.
People and countries buy these bonds as an investment expecting to get their money back with interest at a future date. The ratings give one an idea of how financially sound the country/city/corporation is and how likely one is to not lose their investment.
If a country/city/corporation has a poor rating, others are less likely to risk loosing their investment so they will not buy the bonds. This means the country/city/corporation offering the bonds will not be able to finance their debt (get a loan).
Countries are just like Cities and Corporations. They offer financial instruments (stock, bonds, etc). to finance projects. For instance, if a school district wants to build a new stadium, they sell bonds to finance it. US Savings Bonds are bonds sold by the US government. Countries sell treasury bonds to finance their debt.
People and countries buy these bonds as an investment expecting to get their money back with interest at a future date. The ratings give one an idea of how financially sound the country/city/corporation is and how likely one is to not lose their investment.
If a country/city/corporation has a poor rating, others are less likely to risk loosing their investment so they will not buy the bonds. This means the country/city/corporation offering the bonds will not be able to finance their debt (get a loan).
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