A type of insurance that provides protection (to the holder of a financial obligation) against financial loss arising from default or insolvency, fluctuations in interest rates and currency exchange rates, certain restrictive measures (sectoral or broader), or changes in the value of commodities.
Insurance is transacted through the so-called financial guarantee contracts, which are often written by monoline (mono-line) financial guarantee insurers in the form of insurance contracts, or other types of guarantees. Financial guarantee insurance particularly provides investors in debt securities with guaranteed payment of interest and principal in the event that the issuer of the guaranteed debt (wrapped debt) fails to meet its financial obligations.
In simple terms, this type of insurance represents a commitment made by a third party to make payment in the event of a default in a financial contract. Technically, it is treated like an insurance contract.
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