What are municipal bonds used for?

Municipal bonds are specifically designed to finance public projects undertaken by local governments, such as building schools, highways, and hospitals. When investors purchase municipal bonds, they are effectively lending money to these governments in exchange for periodic interest payments and the return of principal at maturity. This instrument is crucial for municipalities because it provides them with a way to fund essential infrastructure and public services without needing to raise taxes immediately.

The allure of municipal bonds often lies in their tax-exempt status, attracting investors who seek to minimize their tax liabilities. These bonds play a pivotal role in stimulating local economies and improving community infrastructure, reflecting their significant impact on societal welfare.

In contrast, the other options relate to areas where municipal bonds do not play a role. For example, raising funds for corporate projects typically involves corporate bonds, international trade is supported through trade finance and currency mechanisms, and private sector investments most often utilize equity financing or private loans. Thus, the usage of municipal bonds is distinctly focused on supporting public initiatives.