Meaning of credit default swap | Babel Free

Definitions

A credit derivative contract between two counterparties, whereby the buyer (seller of risk) makes periodic payments to the seller (buyer of risk) in exchange for the right to a payoff if there is a default or other credit event in respect of a third party called reference entity.

Equivalents

Examples

“The cost⟳ of that funding is partially influenced by the price of an instrument known as a credit default swap⟳ — essentially, a form⟳ of insurance that one party buys to protect⟳ against the possibility that another party will default. The higher the risk⟳ of default, the higher the price of the C.D.S., and the higher the cost⟳ of funding.”

CEFR level