Dai is a risk manager at the hedge fund. She is relying on bond rating agencies to draw conclusions regarding the ability and willingness of the various countries to service debt and analyzing the debt levels of several emerging countries. The risk management division of her firm has prepared its own analysis and there are several discrepancies between the agency ratings and the firm's own ratings. A colleague of Dai recommends that she ignore the agency ratings and rely solely on the firm ratings. Which of the following statements correctly describes a reason she may not want to rely solely on rating agency opinions regarding debt repayment?
A.  Ratings agencies use objective judgments about a country's ability and willingness to repay debt.
B.  Ratings are often delayed relative to the dynamic business and political environments.
C.  Rating are not influenced by politics and governments or regimes.
D.  Ratings are only considered useful in assessing a country's ability and willingness to pay 5 to 10 years in the future.
Answer:B
Risk analysts like Dai face several challenges when using rating agency data. First, rating agencies, like firms, use subjective judgments about a country's ability and willingness to repay debt, despite large and often comprehensive amounts of data used in analysis. Risk analysts should, therefore, compare external ratings to internally generated assessments and draw conclusions not just from similarities but also from differences of opinion between the firm and the rating agency.
Second, ratings are often delayed relative to the dynamic business and political environments. If Dai has more direct insight into a country either from visiting or working with firms that are operating there, she may have more up-to-date insight than the rating agency. Third, ratings may be influenced by politics and governments or regimes. Fourth, ratings may not be considered useful in assessing a country's ability and willingness to pay 5 to 10 years in the future, so Dai's time line is important in terms of her reliance on rating agency reports.