Products & Their RisksQuestion 123 of 398
A 'bank-qualified' municipal bond is one that:
a.Is guaranteed by a commercial bank rather than an insurer
b.May only be purchased by federally chartered banks
c.Is issued by a small issuer and gives banks a partial tax advantage on the cost of carrying it
d.Automatically qualifies for the highest credit rating
Explanation
A bank-qualified municipal bond is issued by an issuer that reasonably expects to sell no more than a set annual amount of tax-exempt debt. This designation lets banks deduct a portion of the interest cost of carrying the bonds, making the bonds more attractive to banks and often lowering the issuer's borrowing cost.
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