Economics · Financial Markets

Examine the following statements regarding the 'Credit Rating Transition Matrix' and 'Default Studies' published by Credit Rating Agencies (CRAs): Statement 1: A Transition Matrix tracks the movement of ratings over a specific period, showing the probability that a rating in a particular category (e.g., AA) will move to another category or stay the same. Statement 2: SEBI mandates that CRAs publish their 'Default Rates' annually on a cumulative basis for 1-year, 2-year, and 3-year periods. Statement 3: In a perfectly functioning credit market, a Transition Matrix should ideally show that the probability of a 'AAA' rated entity moving to 'D' (Default) within one year is approximately 10 percent. Which of these statements is/are correct?