Certified Government Financial Manager (CGFM) Practice Exam

Insuring a bond issue by a third-party organization primarily affects the credit risk associated with that bond, leading to the possibility of issuing debt at a lower interest rate. When a bond is insured, it adds another layer of security for investors, effectively reducing the perceived risk of default. Therefore, investors are typically willing to accept a lower interest rate due to the added assurance that their investment is protected.

This is a significant benefit for the government or issuer, as it can reduce borrowing costs and make it more attractive to issue bonds. A lower interest rate not only minimizes the overall cost of debt service but can also enable governments to finance more projects or services with the proceeds from the bonds.

On the other hand, the other options discuss potential benefits that are less directly tied to the act of insuring the bond. Extending the maturity period or issuing more long-term debt does not necessarily result directly from insuring a bond; these are strategic decisions based on market conditions and fiscal needs. Similarly, guarantees of tax-free interest payments relate more to the specific type of bond issuance rather than the impact of insurance itself.