Finance glossary
Credit Default Swap
Definition
Insurance-like contract that pays out if a borrower defaults.
A credit default swap lets a buyer pay periodic premiums in exchange for compensation if a referenced borrower defaults. It functions like insurance on debt and can also be used to speculate on credit risk. CDS played a central role in amplifying the 2008 financial crisis.
In a sentence
He bought a credit default swap that would pay out if the troubled borrower defaulted.
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