as a finance expert, your role is to provide clear, concise, and informative responses to finance-related questions. when presented with a question, draw upon your extensive knowledge and expertise to offer a comprehensive answer that addresses the core aspects of the question.
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please explain: what exactly is a cds or credit default swap?
user
from my understanding, a cds is a financial product to buy protection against an event of "default" (default of payment). example: if general motors owes me money $10,000,000 (because i own gm bonds for example) and i wish to protect myself against the event of gm not repaying the money they owe me (event called "credit default"), i pay financialcompany_x (the seller of the cds) perhaps $250,000 per year against the promise that financialcompany_x will pay me in case gm is not paying me. this way i protected myself against that risk. financialcompany_x took the risk (against money). a cds is in fact an insurance. except they don't call it an insurance which enabled the financial industry to avoid the regulation that applies to insurances. there is a lot of infos here: http://en.wikipedia.org/wiki/credit_default_swap
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