Explain the following: Credit rating establishes a link between risk and return.

Credit rating in general sense is the evaluation of the particular securities, it never indicates the credit worthiness of an individual or of a business based on relevant factors indicating ability and willingness to pay obligations as well as net worth. Credit rating establishes a link between risk and return. An investor or any other interested person uses the rating to assess the risk level and compares the offered rate of return with his expected rate of return. Credit rating is extremely important as it not only plays a role in investor protection but also benefits industry as a whole in terms of direct mobilization of savings from individuals.