What is the primary purpose of credit ratings?

The primary purpose of credit ratings is to evaluate the creditworthiness of borrowers. Credit ratings provide an assessment of the likelihood that a borrower, such as a corporation or government, will be able to meet its financial commitments and repay its debts in a timely manner. They help investors, lenders, and other stakeholders understand the default risk associated with a particular borrower.

Credit ratings are essential in the financial markets as they influence the interest rates at which borrowers can secure loans, affecting their overall cost of capital. An organization with a high credit rating is perceived as low risk, often able to borrow at lower interest rates, whereas a lower rating indicates higher risk and can lead to higher borrowing costs.

In contrast, assessing the risk of investment in stocks, determining the market value of securities, or measuring the performance of a financial market focus on different aspects of finance that don't specifically relate to evaluating a borrower's ability to repay debt obligations. Thus, while these functions are important in their own right, they do not align with the core intention of credit ratings.