Besides lower funding costs, what is another effect of higher credit ratings?

• A. Improve access to capital
• B. Increase regulatory requirements
• C. Decrease asset quality
• D. Reduce market liquidity

Answer: (A)

Higher credit ratings broaden the set of investors who are willing to buy the issuer’s debt, expanding access to capital beyond just cheaper funding. When a rating improves, the debt is viewed as safer, so institutions with investment-grade mandates—pension funds, insurance companies, mutual funds, and foreign buyers—are more willing and able to purchase the securities. This increases the demand for new issues, allows larger borrowings, and gives greater flexibility for refinancing, all of which enhances overall access to capital.

Regulatory requirements don’t automatically rise with a higher rating, and asset quality generally improves (not decreases) with a higher rating, while liquidity tends to increase rather than shrink because more buyers can participate.