credit default swaps
Bond failure bets
Credit default swaps are financial instruments that function like insurance against a borrower defaulting on debt.
The buyer of a credit default swap makes regular payments to the seller, who in turn agrees to compensate the buyer if the underlying bond or loan fails.
These derivatives played a notorious role in the 2008 financial crisis, when institutions held massive positions without adequate reserves to cover losses.
The bank hedged its exposure with credit default swaps.
Disease spread by contact
- interconnectednessState of mutual linkage
- exposureState of being unprotected
Global insurance conglomerate
To distribute widely
- triggerWhat initiates action
- settlementResolved dispute or colony
- payoutMoney distributed to recipient
- contractEnforceable written agreement
maturity · termination · bilateral · over-the-counter · documentation · confirmation
Exchanging for value
- liquidityConvertibility to cash
- dealerOne who sells goods
- speculationUnproven theorizing or risky investment
- hedgingNoncommittal maneuvering
Central settlement agency
- Dodd-FrankFinancial regulation legislation
- marginEdge of a page
- collateralSecurity for debt
- reportingConveying documented information
transparency · standardization · exchange-traded · SEC · Basel · netting
To distribute widely
- premiumAdded cost for better
- mark-to-marketValuing at current price
- valuationAssessment of monetary worth
contagion
Disease spread by contact
- interconnectednessState of mutual linkage
- exposureState of being unprotected
AIG
Global insurance conglomerate
spread
To distribute widely
- triggerWhat initiates action
- settlementResolved dispute or colony
- payoutMoney distributed to recipient
contract · maturity · termination · bilateral · over-the-counter · documentation · confirmation
trading
Exchanging for value
- liquidityConvertibility to cash
- dealerOne who sells goods
- speculationUnproven theorizing or risky investment
clearinghouse
Central settlement agency
- Dodd-FrankFinancial regulation legislation
- marginEdge of a page
- collateralSecurity for debt
reporting · transparency · standardization · exchange-traded · SEC · Basel · netting
spread
To distribute widely
- premiumAdded cost for better
- mark-to-marketValuing at current price
- valuationAssessment of monetary worth
- financebank, CFO, banks, controller, finance
- creditcreditworthiness, creditor, creditors, creditworthy, FICO
- housing crisishousing bubble, housing crash, subprime mortgages, foreclosures, subprime loans
- derivativesderivatives, sequel, option, remake, spinoff
- swapsswap, CMS
- riskrisk management, risk exposure, risk factors, risk appetite, risk premium
credit default swapscorporate bonds
Debt issued by businesses
bank loans · direct lending · small business loans · direct investment · sovereign debt
credit default swapsequity investment
Acquiring ownership in business
credit default swapsinsurance policies
Contracts transferring financial risk
FDIC insurance · life insurance · common stock · title insurance