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WHAT IT IS:
A credit default swap (CDS) protects lenders in the event of default on the part of the borrower by transferring the associated risk in return for
periodic income payments.
WHY IT MATTERS:
A credit default swap protects bondholders and lenders against the risk that the borrower will default. The lender's insuring counterparty takes on this
risk in return for income payments. In this respect it is important for the insuring counterparty to fully assess the swap's risk/return feature to ensure it is
receiving fair compensation vis--vis the level of risk.