The investors rely on a rating to reduce total costs of borrowing securities ad perform a risk analysis for any lender that have not conducted their own.
The investors rely on a rating to reduce total costs of borrowing securities and perform a risk analysis for any lender that have not conducted their own.
Actually, I believe that investors generally buy securities. In some forms of derivative trading, one party may "borrow" the underlying security. But based on the context provided, you probably want the more general "buy" if the focus is on the investor (also, see below).
You may wish to be more specific -- there are three types of securities: debt securities such as bonds, equity securities such common stocks, and derivative securities such futures, options, and swaps. From the context of your sentence, I believe you mean bonds.
Remember, the issuer of a bond is borrowing money, and the investor is lending money. Generally, a better bond rating reduces the cost of borrowing from the issuer's perspective, but has an entirely different impact from the investor's point of view. Let's take two imaginary bonds, one highly rated and one lower rated. For the highly rated bond: $100 face value might sell for $80. But the lower-rated bond, $100 face value might sell for $60. To raise $80, the issuer would have to raise the face value to $133 -- thus spending $33 more to raise the same amount. For the investor, the bond rating doesn't change the cost going in -- it changes the profit going out. The lower the rating, the greater the risk of loss and the greater the potential reward. Now I have greatly simplified matters and have not addressed the pricing of bonds on the aftermarket. Your sentence, however, does not accurately reflect the functioning of the bond market at any significant level.
I hope this helps.
|link comment||edited Oct 19 '12 at 07:24 Jeff Pribyl Grammarly Fellow|
Hero of the day
Person voted on the most questions.