What is the primary role of credit rating agencies?

The primary role of credit rating agencies is to assess the creditworthiness of issuers and their debt instruments. These agencies evaluate the risk of default by an issuer based on various factors, including financial health, operating performance, and economic conditions. By assigning ratings to issuers and their securities, they provide investors with critical information that helps them make informed decisions about lending or investing in those securities.

Credit ratings can greatly influence the cost of borrowing for issuers, as higher-rated entities usually experience lower interest rates due to reduced perceived risk. This process fosters transparency in the debt markets, allowing both institutional and individual investors to gauge the relative risk associated with different investment choices.

The other options illustrate roles that are outside the core function of credit rating agencies. Investment advice and market predictions pertain to analysts and advisory firms, while underwriting activities are typically the work of investment banks. Regulatory functions and enforcing compliance are responsibilities undertaken by governmental entities and regulatory boards rather than credit rating agencies.