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Credit Default Swap (CDS)

The simplest credit derivative contract, designed to isolate credit risk and allow it to be transferred between parties. In a single name and Index CDS, the credit risk of a Reference Entity is transferred from protection Buyer to protection Seller. In return, the protection Buyer pays the Seller a Fixed Rate Premium over the life of the CDS transaction or until a Credit Event occurs, in which case there is a compensatory payment made from the protection Seller to the protection Buyer.

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