Q-1 WHAT DO YOU UNDERSTATND BY HIRE PURCHASE?

IS THEIR ANY DIFFERENCE

BETWEEN LEASING AND HIRE PURCHASE?
Meaning:
Hire purchase is a method of financing of the fixed asset to be purchased on future date. Under this
method of financing, the purchase price is paid in installments. Ownership of the asset is transferred
after the payment of the last installment.

Hire Purchase is defined as an agreement in which the owner of the assets lets them on hire for regular
installments paid by the hirer. The hirer has the option to purchase and own the asset once all the
agreed payments have been made. These periodic payments also include an interest component paid
towards the use of the asset apart from the price of the asset.

The term ‘Hire-Purchase’ is a UK term and is synonymous to ‘rent-to-own’ or ‘installment plan’ in

various other countries. Owning goods through hire and purchase lets companies improve their
earnings performance. Not just beneficial to the hirer, this system is also the most effective and secure
form of credit sales for the current owner of the assets

Hire purchase is a method of purchasing or financing capital goods whereby the goods are accessible
for use almost instantaneously but the payment is made in smaller parts over an agreed period. The
ownership is transferred only after the paying all installments. Technically speaking, it is an agreement
between the buyer (or user) of the asset and the financing company whereby the financing company
purchases the asset on behalf of the buyer and the buyer utilized it for business purpose and pays back
to the financing company in small installments called hire charges.

In other words, hire purchase can be defined as an option of financing or acquiring an asset for use
whereby the financing company let the goods on hire to the buyer against small installments called hire
charges and the buyer gets the right to use the asset with an option to purchase the asset by paying all
such installments spread over a period of time. Hire purchase was very prominent for vehicle financing
whether that is a personal car, commercial vehicle etc but now equipment, machinery etc are also
financed with hire purchase method.

Features of Hire Purchase:

The main features of hire purchase finance are:
1. The hire purchaser becomes the owner of the asset after paying the last installment.

2. Every installment is treated as hire charge for using the asset.

3. Hire purchaser can use the asset right after making the agreement with the hire vendor.
4. The hire vendor has the right to repossess the asset in case of difficulties in obtaining the payment of
installment.

Advantages of Hire Purchase:

Hire purchase as a source of finance has the following advantages:
i. Financing of an asset through hire purchase is very easy.

ii. Hire purchaser becomes the owner of the asset in future.

iii. Hire purchaser gets the benefit of depreciation on asset hired by him/her.

iv. Hire purchasers also enjoy the tax benefit on the interest payable by them.

Disadvantages of Hire Purchase:

Hire purchase financing suffers from following disadvantages:
i. Ownership of asset is transferred only after the payment of the last installment.

ii. The magnitude of funds involved in hire purchase are very small and only small types of assets like
office equipment’s, automobiles, etc., are purchased through it.

iii. The cost of financing through hire purchase is very high.

Comparison Chart

BASIS FOR
HIRE PURCHASING LEASING
COMPARISON

Meaning The deal in which one party Leasing is an agreement

can use the asset of the other where one party buys the
party for the payment of asset and allows the other
equal monthly installments is party to use it by paying
known as Hire Purchasing. consideration over a specified
period is known as Leasing.

Governing No Specific Accounting AS- 19

Accounting Standard
 BASIS FOR
HIRE PURCHASING LEASING
COMPARISON

Standard

Down Payment Required Not Required

Installments Principal plus interest Cost of using the asset

Asset type Car, trucks, lorries etc. Land and Building, Property.

Ownership Ownership of the asset is Transfer of ownership

transferred to the hire depends on the type of lease.
purchaser on the payment of
the last installment.

Repairs & Responsibility of hire Depends upon the type of

Maintenance purchaser. lease

Consideration Initial payment plus Lease Rentals

installment.

Duration Short Term Comparatively Long term

Q- 4 DEFINE THE TERM FACTORING? WHAT ARE THE DIFFERENT TYPES OF FACTORING AGREEMENT?
EXPLAIN ITS DETAIL?

Factoring is a financial service covering the financing and collection of accounts receivables in
domestic as well as in international trade. Basically factoring is an arrangement in which receivables on
account of sale of goods or services are sold to the factor at a certain discount. As the factor gets title to
the receivables on account of the factoring contract, he becomes responsible for all credit control, sales
ledger administration and debt collection from the customers.

Functions of the Factor Broadly speaking the main functions of the Factor are as under :
1) To provide finance against book debts, say upto 90 per cent of the invoice value immediately. Thus
the client gets funds immediately for his working capital.
2) To collect cash against receivables on due date from the customers of the clients and furnish reports
to the client.
3) To undertake sales ledger administration (i.e. accounting work) for the client in respect of client's
transactions with its customers.
 4) Under the non-recourse factoring arrangement, if the customer become financially insolvent and
cannot pay up, the Factor provides protection to the client against bad debts on all approved invoices.
Thus the Factor provides debt insurance facility to the client against possible losses arising from
insolvency or bankruptcy of the customer.
5) Factor also provides other information such as sales analysis and overdue invoice analysis which
enable the client to run the business more effectively. Besides, the Factor also provides relevant
expertise in the areas of marketing,finacing, etc to the client.

Types of Factoring:
The types of factoring are discussed below:
(i) Recourse Factoring

In Recourse factoring the credit risk remains with the client though the debt is assigned to the factor,
i.e., the factor can have recourse to the client in the event of non-payment by the customer.

(ii) Non-Recourse Factoring

The Non-Recourse Factoring also called as ‘Old-line factoring’. It is an arrangement whereby he factor
has no recourse to the client when the bill remains unpaid by the customer. Thus, the risk of bad debt is
absorbed by the factor.

(iii) Advance Factoring

Where the payment is made by the factor immediately is called Advance Factoring Under this type of
factoring, the factor provides financial accommodation apart from non-financial services rendered by
him.

(iv) Confidential and Undisclosed Factoring

In confidential and undisclosed factoring the arrangement between the factor and the client are left un-
notified to the customers and the client collects the bills from the customers without intimating them to
the factoring arrangements.

(v) Maturity Factoring.

In maturity factoring method, the factor may agree to pay an amount to the client for the bills
purchased by him either immediately or on maturity. The later refers to a date agreed upon on which
the factor pays the client.

(vi) Supplier Guarantee Factoring

Supplier Guarantee Factoring is also known as ‘drop shipment factoring’. This happens when the
client is a mediator between supplier and customer. When the client is a distributor, the factor
guarantees the supplier against the invoices raised by the supplier upon the client and the goods may be
delivered to the customer. The client thereafter raises bills on the customer and assigns them to the
factor. The factor thus enables the client to make a gross profit with no financial involvement at all.

(vii) Bank Participation Factoring

In bank participation factoring the bank takes a floating charge on the client’s equity i.e., the amount
payable by the factor to the client in .respect of his receivables. On this basis, the bank lends to the
client and enables him to have double financing.

Q-2 DISTINGUISH BETWEEN FACTORING AND FORFAITING. ALSO DISCUSS THE PROBLEMS AREAS IN
FACTORING AND FORFAITING?

The Definition of Factoring and Forfaiting

Factoring
Factoring – also known as invoice factoring or accounts receivable financing – is the process in which
businesses receive advances against their accounts receivables. There are three parties when it comes to
factoring: the debtor (buyer of goods), the client (seller of the goods), and the factor (the financier).
This type of financing is often utilized to manage book debt.
Forfaiting
Forfaiting is a financing option exporters use to receive immediate cash. How it works: The exporter
sells its claim on medium and long-term trade receivables to a forfaiter at a discounted rate to receive
fast access to cash. The benefit: Exporters minimize the risk of factoring by selling without recourse,
which means the exporter is not liable when the importer fails to pay the receivables.
Key Differences Between Factoring and Forfaiting
The main difference between the two is that factoring can be used in domestic and international trade,
whereas forfaiting only applies to international trade financing.
Here are eight additional key differences between factoring and forfaiting:

1. THE PROCESS
Factoring: A financial arrangement where business owners sell their pending invoices (accounts
receivables) to a third party (factoring companies, lenders, or banks) in exchange for fast cash.X
Forfaiting: Belongs under export financing in which an exporter sells their rights of trade receivables
to a forfaiter to acquire immediate cash payment.

2. TIMING
Factoring: Deals with short-term accounts receivables, which typically falls due within 90 days or less.
Forfaiting: Deals with medium- to long-term accounts receivables.

 3. SALE OF RECEIVABLES
Factoring: The sale of receivables are usually on ordinary products or services.
Forfaiting: The sales of receivables are on capital goods.

4. PERCENTAGE OF FINANCING RECEIVED

Factoring: Business owners usually get 80% to 90% financing.
Forfaiting: Funds exporters with 100% financing of the value of exported goods.

5. NEGOTIABLE INSTRUMENTS
Factoring: Deals with negotiable instruments, such as promissory notes and bills of exchanges.
Forfaiting: Does not deal with negotiable instruments.

6. RECOURSE VS. NON-RECOURSEX

Factoring: It can be recourse or non-recourse.
Forfaiting: Always non-recourse.

7.  SECONDARY MARKETS
Factoring: No secondary market.
Forfaiting: There is a secondary market that increases the liquidity in forfaiting.

 8. WHO PAYS FOR THE COST

Factoring: The seller or client pays for the factoring costs.
Forfaiting: The overseas buyer pays for the forfeiting costs.

Disadvantages of Factoring
1) Image of the client may suffer as engaging a factoring agency is not considered i a good sign of
efficient management. I
2) Factoring may not be of much use where companies or agents have one time sales with the
customers.
3) Factoring increases cost of finance and thus cost of running the business.
4) If the client has cheaper means of finance and credit (where goods are sold against advance
payment), factoring may not be useful.

Disadvantages of Forfaiting
1) Only major selected currencies are taken for forfaiting, as they possess international liquidity.
2) Forfaiting reduces the risk for exporters, however, it is more expensive as compared to the basic
financing provided by the banks or financial institutions, which results in higher export cost.
3) The higher export cost is borne by the importer, which is included in the standard pricing.
4) Not all the transactions can avail the forfaiting facility. Meaning that transactions more than
equal to a definite sum are eligible for forfaiting.
PROBLEM AREAS IN FORFAITING AND FACTORING
1. There is presently, no legal framework to protect the banker or forfeiter expect the existing
covers for the risks involved in any foreign transactions
2. Data available on credit rating agencies or importer or foreign country is not sufficient. Even
exim bank does not cover high risk countries like Nigeria.
3. High country and political risks dissuade the services of factoring and banking to many clients.
4. Government agencies and public sector undertakings (PSUs) neither promptly make payments
nor pay interest on delayed payments.
5. The assignment of book debts attracts heavy stamp duty and this has to be waived.
6. Legislations is required to make assignments under factoring have priority over other
assignments .
7. There should be some provisions in law to exempt factoring organization from the provisions of
money lendibg legislations.
 8. The order 37 of civil procedure code should be amended to clarify that factor debts can be
recovered by resorting to summary procedures.
Thus, the existing legal framework governing the transactions of factoring business is not adequate
to make the functioning simple, inexpensive and attractive in the market.
Q-3 WHAT DO YOU UNDERSTAND BY CREDIT RATING? WHAT ARE THE ADVANTAGES
AND DISADVANTAGES OF CREDIT RATING?
Credit Rating is an opinion of a rating agency about a debt instrument. The opinion is expressed
through symbols which indicate the degree of risk associated with repayment of principal and payment
of interest on debt instruments. Credit rating agency gets a fee for their services from corporate entities
which approach for a rating of their instruments.
Credit rating is not mandatory to all corporate sectors except for certain instruments. The financial
position of the corporations is reviewed frequently and the ratings are revised by the credit rating
agency.X
Features of Credit Rating
 Facilitate investment decisions
 Assess credit worthiness of an individual, corporation or country
 Increase investor confidence
 Healthy financial discipline
 Allocate capital efficiency
Types of Credit Rating
Following are the different types of credit ratings:X
 Sovereign Credit Rating
 Short Term Credit Rating
 Corporate Credit Rating
Types of Credit Rating
Sovereign Credit Rating
Sovereign credit rating is the credit rating of a sovereign entity like a national government. A country
may be rated whenever a loan is to be extended or some major investment is to be made in it by
international investors.
A number of factors such as growth rate, industrial and agricultural production, government policies,
inflation, fiscal deficit etc. are taken into consideration to arrive at such rating.
Short Term Credit Rating
Short term rating is a probability factor of an individual going in to default within a year. Now a day’s
short term rating is very common.
Corporate Credit Rating
Corporate credit rating is the rating of financial instruments issued by corporate entities. The credit
rating of a corporation is a financial indicator to potential investors of debt securities such as bonds.
Investor looks at the credit rating of instrument and issuer before investing.
Advantages of Credit Rating
Following are the advantages of credit rating:X
1. Helps in Investment Decision
2. Freedom of Investment Decisions
3. Assurance of safety
4. Choice of Instruments
5. Dependency on Rating
6. Continuous Monitoring
7. Easy to Raise Fund
8. Good Corporate Image
9. Lower the Cost of Public Issue
10.Easy and Lowers Cost of Borrowing
11.Help Non-popular Companies
12.Rating Facilitates Growth
Benefits to the Investor
Following are the benefits of credit rating to the investor:
 Helps in Investment Decision
 Freedom of Investment Decisions
 Assurance of safety
 Choice of Instruments
 Dependency on Rating
 Continuous Monitoring
Helps in Investment Decision
Credit rating gives an idea of the creditworthiness of the issuing company and the risk associated with
a particular security. Depending upon the credit rating investor can decide whether to invest in such
company or not.
Freedom of Investment Decisions
For common people it is very difficult to take investment decisions. Before taking investment decisions
they seek advice from the stock brokers, merchant bankers or portfolio managers. Credit rating service
makes the task easy by attaching rating symbols to a particular security.
Rating symbol assigned to a particular instrument suggests the creditworthiness of the instrument and
indicates the degree of risk involved in it.
Assurance of safety
A high rating assures the investor about the safety of the instrument. Companies having high ratings of
their instruments maintain healthy financial discipline.
Choice of Instruments
By rating the securities, credit rating agencies enables an investor to select a particular instrument from
many alternatives available.
Dependency on Rating
The ratings assigned to the instruments are authentic and reliable. The rating firms are independent of
issuing company and have no business connection with. Hence, they give a fair rating to the
instruments. This brings confidence among the investors.
Continuous Monitoring
Credit rating agencies not only assign rating symbols but also continuously monitor them. The Rating
agency downgrades or upgrades the rating symbols depending upon performance and position of the
company.
Following are the benefits of credit rating to the company:
 Easy to Raise Fund
 Good Corporate Image
 Lower the Cost of Public Issue
 Easy and Lowers Cost of Borrowing
 Help Non-popular Companies
 Rating Facilitates Growth
Easy to Raise Fund
It become very easy for a company to raise fund from the market if the instruments issued by the
company are highly rated. A high rating gives confidence to the investors. Many investors always like
to make investments in such instrument, which ensure safety and easy liquidity rather than high rate of
return.
Good Corporate Image
High credit rating of securities helps in improving the corporate image of a company. A high credit
rating increases the level of confidence among the investors. This helps in creating a good corporate
image of the company.
Lower the Cost of Public Issue
A company with highly rated instruments has to make least efforts in raising funds through public
issue. A good credit rating gives good publicity to the company. Companies with highly rated
instruments enjoy better goodwill and corporate image in the eyes of customers, shareholders, investors
and creditors.
Investors feel secured of their investments and creditors are assured of timely payments of interest and
principal.
Easy and Lowers Cost of Borrowing
A company with highly rated debt instruments has to make least efforts in raising funds from the
market. A high rating indicates low risk. High rated instrument will enable the company to offer low
rate of interest. The investors will accept low interest because of low risk involvement.
High credit rating gives the company wider spectators for borrowing. It can easily approach financial
institutions, banks, investing companies, public etc. for borrowings.
Help Non-popular Companies
Good credit rating gives exposure to the company. If the instruments issued by a company get
publicity, the company with low publicity gets popularity. It will now become easy for the company to
raise fund from the market.
Rating Facilitates Growth
Rating motivates the management of the company to undertake expansion of their operations or
diversify their production activities thus leading to the growth of the company in future.
Disadvantages of Credit Rating
Following are the disadvantages of credit rating:X
1. Non-disclosure of Important Information
2. Possibility of Biasness
3. Problems for New Company
4. Static in Nature
5. Rating is Not Certificate of Soundness
6. Difference in Rating Grades
Disadvantages of Credit Rating
Non-disclosure of Important Information
The firm being rated may not furnish all material or important information to the credit rating agency.
Any decision taken in absence of such important information may put investors at a loss.
Possibility of Biasness
The rating given by credit rating agency is based on the information collected from the company. The
information collected by the rating agency may be subject to personal bias of the rating team.
Problems for New Company
Rating agencies give ratings on the basis of information supplied by the company. But, a new company
may not be able to provide sufficient information to prove its financial soundness. Therefore, it may get
lower credit rating. A low credit rating may create problem in raising funds from the market.
Static in Nature
Rating is done on the basis of a static study of present and past data of the company at one particular
point of time. There are numbers of political, economical, social and environmental factors which have
direct bearings over the affairs of the company. Any changes after the rating may defeat the very
purpose of rating.
Rating is Not Certificate of Soundness
Rating grades by the rating agencies are only an opinion about the capability of the company to meets
its interest obligations. Rating symbols do not pinpoint towards financial soundness or quality of
products or management or staff etc. In other words rating does not give a certificate of the complete
soundness of the company.
Difference in Rating Grades
Same instrument may be rated differently by different rating agencies because of many factors. This
may create confusion among the investors.
Users of Credit Rating
There are broadly four users of credit rating:X
 Investors
 Intermediaries
  Issuers
 Businesses and Financial Institutions
Users of Credit Rating
Investors
Investors are the prime users of credit rating. They often use credit ratings to assess credit risk and to
compare different issuers and debt issues when making investment decisions. Individual investors, for
example, may use credit ratings in evaluating the purchase of a municipal or corporate bond from a risk
tolerance perspective.
Institutional investors, including mutual funds, pension funds, banks, and insurance companies often
use credit ratings to supplement their own credit analysis of specific debt issues.
Intermediaries
Intermediaries like Investment bankers help to facilitate the flow of capital from investors to issuers.
They may use credit ratings to benchmark the relative credit risk of different debt issues, as well as to
set the initial pricing for individual debt issues and to help determine the interest rate these issues will
pay.
Intermediaries that structure special types of debt issues may look to a rating agency’s criteria when
making their own decisions about how to configure different debt issues, or different tiers of debt
Issuers
Issuers use credit ratings to provide independent views of their creditworthiness and the credit quality
of their debt issues. Issuers may also use credit ratings to help communicate the relative credit quality
of debt issues, thereby expanding the universe of investors. In addition, credit ratings may help them
anticipate the interest rate to be offered on their new debt issues.
As a general rule, if creditworthiness is more the issuer need to pay lower interest rate to attract
investors and issuer with lower creditworthiness will typically pay a higher interest rate to offset the
greater credit risk assumed by investors.
Credit Rating Agency in India
 Credit Rating Information Services of India Limited (CRISIL): CRISIL is the largest and first
credit rating agency of India and a global leader in research, ratings and risk & policy
advisory services.

 Investment Information and Credit Rating Agency of India Limited (ICRA): CRA was
promoted by Industrial Finance Corporation of India jointly with other leading financial/
investment institutions, commercial banks and financial services companies as an independent
and professional investment Information and Credit Rating Agency.

 Credit Analysis & Research Ltd. (CARE): CARE was incorporated in April 1993 as a credit
rating information and advisory services company. t is a credit rating and information services
company promoted by the Industrial Development Bank of India (IDBI) jointly with financial
institutions, public / private sector banks and private finance companies.

 Fitch India Limited: With the acquisition of Duff and Phelps Credit Company in April 2000
by Fitch Ratings, Duff and Phelps Rating India Private Limited became Fitch India Limited.
 Duff and Phelps Credit Rating India Private Ltd was the first joint venture rating company
promoted by JM Financials, Alliance Group and the international rating agency Duff and
Phelps.

 ONICRA Credit Rating Agency of India Limited: ONICRA Credit Rating Agency is one of
the leading Credit and Performance Rating agencies in India. The company is based in
Gurgaon and founded in 1993. It provides ratings, risk assessment and analytical solutions to
Individuals, MSMEs and Corporates.

 Brickwork Ratings India Pvt. Limited (BWR): Brickwork Rating India Pvt. Ltd. was founded
in 2007 by group of professionals to provide rating of public issues and others to help
investors take information decisions.

 SME Rating Agency of India Limited (SMERA): SMERA is a joint venture started by Small
Industrial Development Bank of India (SIDBI), Dun & Brand Street Information Services
India Private Limited (D& B) and several leading banks in India.

CREDIT RATING AGENCIES IN INDIA

There are 6 credit rating agencies which are registered with SEBI. These are CRISIL, ICRA, CARE,
Fitch India, Brickwork Ratings, and SMERA.
1. Credit Rating and Information Services of India Limited (CRISIL)
• It is India’s first credit rating agency which was incorporated and promoted by the erstwhile
ICICI Ltd, along with UTI and other financial institutions in 1987.
• After 1 year, i.e. in 1988 it commenced its operations
• It has its head office in Mumbai.
• It is India’s foremost provider of ratings, data and research, analytics and solutions, with a
strong track record of growth and innovation.
• It delivers independent opinions and efficient solutions.
• CRISIL’s businesses operate from 8 countries including USA, Argentina, Poland, UK, India,
China, Hong Kong and Singapore.
• CRISIL’s majority shareholder is Standard & Poor’s.
• It also works with governments and policy-makers in India and other emerging markets in the
infrastructure domain.
2. Investment Information and Credit rating agency (ICRA)
• The second credit rating agency incorporated in India was ICRA in 1991.
• It was set up by leading financial/investment institutions, commercial banks and financial
services companies as an independent and professional investment Information and Credit
Rating Agency.
• It is a public limited company.
• It has its head office in New Delhi.
• ICRA’s majority shareholder is Moody’s.
3. Credit Analysis & Research Ltd. (CARE)
• The next credit rating agency to be set up was CARE in 1993.
• It is the second-largest credit rating agency in India.
• It has its head office in Mumbai.
• CARE Ratings is one of the 5 partners of an international rating agency called ARC Ratings.
4. ONICRA
 • It is a private sector agency set up by Onida Finance.
• It has its head office in Gurgaon.
• It provides ratings, risk assessment and analytical solutions to Individuals, MSMEs and
Corporates.
• It is one of only 7 agencies licensed by NSIC (National Small Industries Corporation) to rate
SMEs.
• They have Pan India Presence with offices over 125 locations.

Q-5 DISCUSS IN BRIEF SOME IMPORTANT INTERNATIONAL CREDIT RATING AGENCIES?

The Big Three Agencies
The global credit rating industry is highly concentrated, with three agencies—Moody's, Standard & Poor's,
and Fitch—controlling nearly the entire market. 1  2 Together, the provide a much-needed service for both
borrowers and lenders, as well as to lenders. They intend to give the market information that is both reliable
and accurate about the risks associated with certain kinds of debt.

Fitch Ratings
Fitch is one of the world's top three credit rating agencies. It operates in New York and London, basing
ratings on company debt and its sensitivity to changes like interest rates. When it comes to sovereign debt,
countries request Fitch—and other agencies—to provide an evaluation of their financial situation along with
the political and economic climates.

Investment grade ratings from Fitch range from AAA to BBB. These letter grades indicate no to low potential
for default on debt. Non-investment grade ratings go from BB to D, the latter meaning the debtor has
defaulted.3

History
John Knowles Fitch founded the Fitch Publishing Company in 1913, providing financial statistics for use in
the investment industry via "The Fitch Stock and Bond Manual" and "The Fitch Bond Book." 4 In 1923, Fitch
introduced the AAA through D rating system that has become the basis for ratings throughout the industry. 5
With plans to become a full-service global rating agency, in the late 1990s Fitch merged with IBCA of
London, subsidiary of Fimalac, a French holding company. Fitch also acquired market competitors Thomson
BankWatch and Duff & Phelps Credit Ratings. 6 Fitch began to develop operating subsidiaries specializing in
enterprise risk management, data services, and finance-industry training starting in 2005 with the acquisition
of a Canadian company, Algorithmics, and the creation of Fitch Solutions and Fitch Training (now Fitch
Learning).5

Moody's Investors Service

Moody's assigns countries and company debt letter grades, but in a slightly different way. Investment grade
debt goes from Aaa—the highest grade that can be assigned—to Baa3, which indicates that the debtor is
able to pay back short-term debt. Below investment grade is speculative grade debt, which are often
referred to as high-yield or junk. These grades range from Ba1 to C, with the likelihood of repayment
dropping as the letter grade goes down. 7

History
John Moody and Company first published "Moody's Manual" in 1900. The manual published basic statistics
and general information about stocks and bonds of various industries. From 1903 until the stock
market crash of 1907, "Moody's Manual" was a national publication. In 1909, Moody began publishing
"Moody's Analyses of Railroad Investments," which added analytical information about the value of
securities. Expanding this idea led to the 1914 creation of Moody's Investors Service, which, in the following
10 years, would provide ratings for nearly all of the government bond markets at the time. By the 1970s
Moody's began rating commercial paper and bank deposits, becoming the full-scale rating agency it is
today.8
Standard & Poor's
S&P has a total of 17 ratings it can assign to corporate and sovereign debt. Anything rated AAA to BBB- is
considered investment grade, meaning it has the ability to repay debt with no concern. Debt rated BB+ to D
is considered speculative, with an uncertain future. The lower the rating, the more potential it has to default,
with a D-rating being the worst. 9

History
Henry Varnum Poor first published the "History of Railroads and Canals in the United States" in 1860, the
forerunner of securities analysis and reporting that would be developed over the next century. Standard
Statistics formed in 1906, which published corporate bond, sovereign debt, and municipal bond ratings.
Standard Statistics merged with Poor's Publishing in 1941 to form Standard and Poor's Corporation , which
was acquired by The McGraw-Hill Companies in 1966. Standard and Poor's has become best known by
indexes such as the S&P 500, a stock market index that is both a tool for investor analysis and decision-
making, and a U.S. economic indicator.8