Credit Default Swap

Credit Default Swaps (CDS) are an over-the-counter (OTC) insurance derivative product between two parties that they can use to offset the exposure to credit risk. It is an insurance product for the loan issuer if the borrower fails to repay it.

A third party agrees to pay the loan issuer if the loan defaults in exchange for receiving regular payments from the issuer if the loan repayments are made on time.