krediidiliinidele

Krediidiliinidele, also known as credit default swaps (CDS), are financial derivatives that provide protection against the risk of default by a borrower. These contracts are typically used by investors to hedge against the credit risk of a bond or loan. In a CDS, one party, known as the protection buyer, pays a periodic fee to the protection seller in exchange for protection against the default of a specified reference entity. If the reference entity defaults, the protection seller pays the protection buyer a predetermined amount, typically the face value of the bond or loan. The primary purpose of a CDS is to transfer the credit risk from one party to another, allowing the protection buyer to avoid the potential losses associated with a default. CDS are widely used in the financial markets, particularly in the context of corporate bonds and sovereign debt. They play a crucial role in managing credit risk and are an essential tool for investors seeking to mitigate potential losses. However, CDS also come with their own set of risks, including counterparty risk and the potential for moral hazard, where the protection buyer may take on more risk due to the perceived safety provided by the CDS.