Answer:
Credit Default Swap (CDS) is a financial swap agreement or contract that allows investors to swap their credit risk with the credit risks of other investors.
Step-by-step explanation:
Credit Default Swap is the most common form of credit derivative. It guarantees against bond risk and work like insurance policies.
If a lender is afraid of not being paid by his or her borrower, the lender can buy a CDS from another investor to offset the risk. The buyer of the CDS is required to makes some payments to the seller and in turn receive the loan repayment if the initial borrower defaults.
Third parties that sell CDS are usually banks, insurance companies and hedge funds.