Which best describes a credit default swap?
A) It is designed to reduce interest-rate risk.
B) The issuer receives payments from the buyer in return for agreeing to make payments to the buyer if the security goes into default.
C) Issuers are taking out insurance in case of default.
D) It represents a way for the issuer to establish its creditworthiness.

Question

Quizplus · Accepted Answer

A credit default swap is a financial contract in which the issuer (seller) of the swap receives payments from the buyer in return for agreeing to make payments to the buyer if the security (usually a bond) goes into default. It is essentially a form of credit insurance.

Which Best Describes a Credit Default Swap