credit default swap

Definition of "credit default swap"
  1. A financial agreement where one party, typically an insurance company, agrees to bear the risk and compensate the other party, usually a bank, for any loss if a particular debtor, like a corporation, fails to fulfill its debt obligations. This contract can be bought or sold on the finance market by any of the involved parties
How to use "credit default swap" in a sentence
  1. The bank entered into a credit default swap to assure their investment against the corporation's potential default on its debt.
  2. In order to mitigate risk, the lender opted for a credit default swap, securing potential losses if the borrower failed to repay.
  3. The financial firm was active in the trading of credit default swaps to manage the risk in their investment portfolio.

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