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Financial Terms and Glossary

Short term rating

Short-Term Rating

A short-term rating is a credit rating assigned to debt securities or obligations with a maturity of one year or less. These ratings assess the likelihood that the issuer will meet its short-term financial commitments. Agencies like Moody’s, S&P, and Fitch provide short-term ratings, which are crucial for evaluating the risk associated with short-term debt instruments such as commercial paper or short-term bonds.

Example:

A corporation issues 90-day commercial paper, and a credit rating agency assigns it a short-term rating of A-1, indicating strong confidence that the company can meet its short-term obligations.

Key points

• Credit rating for debt securities with maturities of one year or less.

• Assesses the likelihood of meeting short-term financial obligations.

• Important for evaluating short-term debt instruments like commercial paper.

Quick Answers to Curious Questions

Why are short-term ratings important for investors?

They help investors assess the creditworthiness of issuers in the short term, guiding decisions on low-maturity debt investments.

What factors influence a company’s short-term rating?

Factors include the company’s current liquidity, cash flow, and short-term liabilities.

How do short-term ratings differ from long-term ratings in assessing credit risk?

Short-term ratings focus on immediate solvency, while long-term ratings evaluate the company’s ability to meet obligations over longer periods.

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