Credit default swaps (CDS) are a type of insurance contract that compensates the buyer in the event of default by a debtor or borrower. CDS played a significant role in the 2008 financial crisis as they were widely used to gamble on the housing market and other risky investments, and were sold without adequate collateral or regulatory oversight.

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Credit Default Swaps

Question 213

Multiple Choice

Credit default swaps

A) are a type of collateralized debt obligation.
B) are a type of insurance against defaults.
C) were accurately priced before the housing market collapsed.
D) made AIG the most profitable company in the United States.

Correct Answer: