General Securities Representative (Series 7) Practice Exam

What are three types of bond insurance?

1. Fidelity, Guarantee, and Insurance Co.

2. AMBAC, MBIA, and FGIC

3. Government, Private, and Foreign insurers

4. Credit, Default, and Property insurers

The correct answer is: AMBAC, MBIA, and FGIC

Bond insurance serves to protect bondholders from the risk of default by the issuer. The correct answer identifies three prominent bond insurance companies: AMBAC (American Municipal Bond Assurance Corporation), MBIA (Municipal Bond Investors Assurance Corporation), and FGIC (Financial Guaranty Insurance Company). These companies provide insurance on municipal bonds, ensuring that bondholders receive timely payment of principal and interest, even if the issuer experiences financial difficulties. This is critical because having the backing of reputable insurance can significantly enhance the credit quality of a bond. Investors are often more willing to purchase bonds that are insured by these recognized firms, as it mitigates their risk. The presence of such insurance also usually lowers the bond's yield, reflecting the reduced risk for investors. In contrast, the other options do not accurately list specific insurance providers, and while they may reference concepts related to insurance types or classifications, they do not directly address insurers within the context of bond insurance.