What should the notes to financial statements indicate regarding investments in debt securities?

The correct answer emphasizes the importance of providing comprehensive information about investments in debt securities. The notes to financial statements should include credit ratings for all securities held by the entity, regardless of whether they are directly owned or part of a derivative arrangement. Credit ratings give stakeholders insight into the risk associated with these investments, which is crucial for understanding the financial health and risk exposure of the entity.

Including credit ratings enhances transparency and allows users of the financial statements to assess the creditworthiness of the securities, which can influence investment decisions and the perceived stability of the organization. This information is particularly essential for debt securities, where credit risk can significantly impact the value of investments and overall financial performance.

In contrast, focusing solely on directly held securities or on derivatives only would limit the understanding of the full scope of the entity's investment portfolio. Similarly, excluding discussions about interest rate risk fails to provide a complete picture of the potential risks associated with those investments, which are vital for stakeholders in making informed decisions.