Forex glossary of terms
Standard and Poor's rating scale
The standard and poor rating system involves a scale composed of letters. The sequence of the scale starts at AAA which is the highest and ends at R which is the lowest. The full scale from highest to lowest rating is as follows: AAA, AA, A, BBB, BB, B, CCC, R. A rating of "AAA" means that a company has a very large probability of honoring all of its financial obligations and to maintain them over a large duration of time. An AAA rated company thus represents total financial security in both theory and practice.
A companies claims-paying ability can be classified based on its Standard and poor rating which are divided into two different classifications. Any company which has a rating from 'AAA' to 'BBB' can be considered to be "secure". This also serves to tell financial insurers that a company has a great financial capacity to meet policyholder obligations. It is seen on balance as sound. Any company with a classification ranging from 'BB' to 'CCC' are regarded as "vulnerable" and serves to tell insurers that a company does not have enough financial capacity to meet policyholders obligations. They are seen as unstable and as being in a poor economic condition.
Both plus and minus signs represent a company's standing within a category contrary to common thought that they indicate potential future rating changes. Certain company's ratings will sometimes also consist of a subscript of the letter 'q'. This represents the fact that the company's rating is based on quantitative analysis from any financial data made publically available. With regards to ratings related to claims-paying ability, this is mandatory financial data that must be filed with the National Association of Insurance Commissioners. The q subscript is not included in the Annuity & Life Insurance Shopper rating.
Long-Term Credit Ratings
Standard and Poor (S and P) scales rank companies on a scale ranging anywhere from AAA (the best) to D (being the worst). There are also rankings that occur between levels. For example, between AA and B a company can receive a rating of BBB+, BBB and BBB-. For some companies, Standard and poor rating system may also offer its help through giving on its opinion as to whether or not a company is likely to be downgraded (a minus sign) upgraded (a plus sign) or uncertain (neutral). This is known as a credit watch.
Short-Term Issue Credit Ratings
Standard and Poor also rates specific issues occurring within a company on a scale ranging from A-1 to D. Furthermore, once in the A-1 category a company can be given a plus sign. This is a reliable sign that the issuer's is in an excellent financial position to meet any financial obligations. When factoring a companies credit analysis and issue rating both country risk and the currency with which the obliged individual will pay back with are taken into consideration.
S&P Fair Value Rank
Using Standard and Poor's specific quantitative model, stocks can be placed in one of five different groups starting with group 5 which includes the most undervalued stocks going all the way up to Group one which includes the most overvalued stocks. As undervalued stocks, any group 5 stock is expected to be more profitable than anything else. In addition to the rankings, a positive (+) or negative (-) sign known as a timing index can sometimes be added onto the Fair Value rating in order to ease the selecting of stocks. A stock with a positive sign attached to the Fair Value Rank indicated that it has an even better chance to be more profitable than another stock categorized within the same group. Conversely, a stock with a negative sign attached to it is projected to be less profitable than a stock in a similar fair value group ranking. Fair Value rankings, measured according to groups 5 to 1 can be interpreted as follows:
Group 5 - The stock is extremely underrated/undervalued
Group 4- The Stock is somewhat underrated/undervalued
Group 3- The stock is valued appropriately
Group 2 - The Stock is somewhat overrated/overvalued
Group 1 - The Stock is extremely overrated/overvalued
Standard & Poor offers their popular Bank Ratings Service which provides subscribers with in depth coverage and of many rated financial institutions such as bank holding companies, securities firms and banks. Furthermore, S & P's Bank Ratings Service gives subscribers well thought out analysis for more than 70 national banking systems, which can then later be used to make independent assessments on other institutions. Lastly but very noteworthy, S &P's Bank Ratings service also faxes out notifications of updated and new and ratings literally within minutes of public knowledge.
S & P's Bank Ratings Service is an important tool for guidance within financial institutions across the globe.
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