Rating agencies' role in financial markets

Rating agencies evaluate the creditworthiness of issuers like governments, companies, and financial products. Their assessments, expressed as credit ratings, help investors understand the risk of default—that is, the chance they might not get their money back. These ratings influence interest rates and investment decisions, as higher-rated entities are considered safer and typically borrow at lower costs. By providing an independent opinion on credit risk, rating agencies contribute to market transparency and stability, enabling informed decisions and efficient allocation of capital in financial markets.