AMBAC Insures the interest and principal payments for municipal bonds and other public finance debt obligation.
State and local governments may request and pay for AMBAC to insure the interest and principal payments of its municipal issues. The state or local government may find that paying the insurance premium to AMBAC for its issues, provides a significant savings to the issuer by allowing the debt securities to be sold with a much lower interest rate. Insured municipal securities are generally rated AAA and as such usually have low interest rates. It is important to note for your exam that an investor does not pay for the insurance and AMBAC does not insure against market losses. AMBAC only insures against defalut.
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