27 August, 2021

A credit default swap or CDS is a derivative. This is a kind of debt non-payment insurance. The buyer of a CDS pays a premium to the seller of the CDS in exchange for the guarantee that if the issuer of the hedged debt does not repay the CDS, the seller will pay the premium. The CDS seller speculates against the risk of non-payment and expects to make a profit from premium payments. The higher the risk of non-payment, the higher the premium.

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