Credit default swaps:

Question

Quizplus · Accepted Answer

Credit default swaps (CDS) are financial derivative instruments that allow investors to hedge against or speculate on the default of a debt instrument. They are not loans themselves but are agreements to swap the risk of default. Investors can use CDS to bet on the default of a debt issuer without actually owning the underlying debt instrument, making choice B correct. They were not invented in the nineteenth century by British investment houses, nor are they issued by banks specifically to cover losses from investing in AIG, making choices A, C, and D incorrect.

Credit Default Swaps