Credit ratings, credit rating agencies, and sovereign credit ratings

Especially in the last century, globalization and deregulation have shown intensively in every field with technological advances. These developments have affected the financial markets as well as in all other areas of the economic system, and restrictions and obstacles between countries have started to lose their effect rapidly. At this point, however, a crucial need arose for market participants: accurate information. For market participants who want to know about the risk they take when making an investment decision, accessing the accurate information is costly; and this negatively affects market discipline. At this point, credit rating is the most important tool to ensure market discipline. Credit rating is briefly defined as an independent assessment on whether an obligator can fulfill its financial obligations on time. This assestment is carried out by credit rating agencies within the framework of a certain method. Although there are many local and national rating agencies around the world, there are big three credit rating agencies (CRAs) which hold almost the entire market: Standard and Poor's (S and P), Fitch, and Moody's.Credit rating can be classified into many different subcategories. The rating can be classified as long- or short-term ratings according to their maturities, and local currency and foreign currency ratings according to their types. After risk assessment in the light of some economic and political factors for a country, the alpha numerical indicators determined in terms of long-term foreign currency are called Sovereign Credit Rating. Sovereign Credit Ratings are determined and announced by the CRAs. CRAs determine sovereign credit ratings on a scale that consists of many levels ranging from 'prime' level to 'default' level. This scale also shows the rating grades of the agencies. The scale used by CRAs is classified into three different levels: investment grade, non-investment grade, and default grade.