A credit default swap functions like an insurance policy against the possibility of default on a bond or other security collateralised by debt.

Question

Quizplus · Accepted Answer

A credit default swap is a financial contract in which a buyer pays a seller payments over a period of time in exchange for protection against credit events such as default, bankruptcy, or other forms of credit risk. The buyer essentially purchases insurance against the possibility of default on a bond or other security collateralized by debt.

A Credit Default Swap Functions Like an Insurance Policy Against