1. Which of the following was the first Credit Rating Agency established in India?
Fitch India
CARE
CRISIL
ICRA
Explanation:
Credit Rating Information Services of India Limited (CRISIL) was incorporated in 1987 and started operations in 1988, becoming India's first credit rating agency.
2. Which symbol typically represents the highest safety/creditworthiness rating by agencies like CRISIL or ICRA?
Explanation:
"AAA" ratings indicate the highest degree of safety regarding timely servicing of financial obligations and carry the lowest credit risk.
3. Credit Information Companies (CICs) like CIBIL provide a credit score to individuals. What is the typical range of the CIBIL TransUnion Score?
100 to 1000
-1 to 5
300 to 900
0 to 100
Explanation:
The CIBIL score ranges from 300 to 900. A score closer to 900 indicates high creditworthiness and lower risk for the lender.
4. "Sovereign Credit Rating" assesses the creditworthiness of:
Multinational Corporations
World Bank
National Governments
State Bank of India
Explanation:
Sovereign ratings give investors insight into the level of risk associated with investing in the debt of a particular country (national government).
5. Which of the following is NOT a SEBI-registered Credit Rating Agency (CRA) in India?
Explanation:
CIBIL (TransUnion CIBIL) is a Credit Information Company (CIC) that maintains credit records of individuals/companies, not a Credit Rating Agency (CRA) that rates debt instruments. CRAs evaluate the creditworthiness of issuers of debt securities.
6. Instruments with a credit rating of "BBB" (Triple B) and above are generally considered:
Default Grade
Investment Grade
Risk-free
Speculative Grade
Explanation:
Ratings of BBB- (or equivalent) and above signify adequate safety regarding timely payment and are termed "Investment Grade." Ratings below this (BB and lower) are "Speculative" or "Junk" grade.
7. The practice where an issuer solicits ratings from multiple agencies but publishes only the most favorable one is known as:
Credit Enhancement
Rating Shopping
Rating Surveillance
Insider Trading
Explanation:
Rating Shopping misleads investors about the true risk. SEBI has introduced strict disclosure norms to curb this, requiring issuers to disclose all ratings obtained, even those not accepted.
8. Under Basel III capital regulations in India, if a borrower has two different ratings from two different credit rating agencies, which rating is applied for risk weighting?
The higher rating (lower risk).
An average of the two ratings.
The lower rating (higher risk).
The rating from the older agency.
Explanation:
Prudential norms dictate conservatism. If there are two ratings, the lower rating (indicating higher risk) must be used to calculate capital requirements.
9. A "Negative Outlook" assigned by a Credit Rating Agency implies:
The company has defaulted.
The rating has already been downgraded.
The rating may be lowered in the medium term.
The rating is likely to be upgraded soon.
Explanation:
A Rating Outlook assesses the potential direction of a long-term credit rating over the intermediate term (usually 6 months to 2 years). A "Negative" outlook means the rating may be lowered.
10. Which factor is least likely to influence a country's "Sovereign Credit Rating"?
Fiscal Deficit and Debt-to-GDP ratio.
Foreign Exchange Reserves.
Performance of a specific private company's stock.
Political Stability.
Explanation:
Sovereign ratings assess the government's ability to repay debt. Macro-economic indicators (Debt, Forex, Stability) matter, not the stock performance of individual private firms.
11. According to SEBI regulations, a Credit Rating Agency (CRA) must disclose its "Rating Philosophy" to ensure:
That the government approves the rating.
That the issuer gets the highest rating.
That the rating is not downgraded for 5 years.
Transparency and understanding of the rating methodology by investors.
Explanation:
SEBI mandates CRAs to disclose their rating criteria, methodology, and philosophy to the public to maintain transparency and help investors understand how the creditworthiness was assessed.
12. National E-Governance Services Ltd (NeSL) serves as India's first:
Depositories
Stock Exchange
Credit Rating Agency
Information Utility (IU) under IBC
Explanation:
NeSL is the first Information Utility registered with IBBI under the Insolvency and Bankruptcy Code, 2016. It stores financial information (debts/defaults) to facilitate insolvency resolution.
13. Under Basel norms, External Credit Assessments (Ratings) are used to determine:
Liquidity Coverage Ratio.
Risk Weighted Assets (RWA) for Credit Risk.
Operational Risk Capital.
Market Risk Capital.
Explanation:
The Standardized Approach for Credit Risk under Basel norms uses external ratings to assign risk weights (e.g., AAA = 20%, BBB = 50% or 100%) to bank exposures.