Shares in Japan fell sharply on Monday -- partly in response to an announcement by the American credit rating agency, Moody's, that it was downgrading a leading Japanese bank. Credit rating agencies play an important role in guiding investors to the risks of placing their money with companies or countries. Although the after the recent financial problems in East Asia some have been questioning how effective they are, as our business correspondent, Andrew Wood now reports:

For investors, credit rating agencies provide a simple guide to the financial health of a firm or government. They're based on the letters A to C.

A rating of triple-A from Moody's or Standard and Poor's is only awarded to the most creditworthy institutions -- the World Bank or the United States for example. If you lend money to them, by buying a bond, there's a very good chance your money will be repaid and the interest payments will arrive on time.

A letter "C", on the other hand, is a speculative investment, which might never be repaid. If a credit rating agency moves a country up or down a notch it can have enormous effects.

The better the rating, the more money flows into a country. A downgrade can be disastrous -- pension funds are only usually allowed to invest money in the least risky bonds.

If a country is downgraded to "junk" status then there will be a wave of selling. The idea is agencies act as early warning system -- but critics say they're not acting quickly enough.