FIN 401- GROUP PROJECT #2 Credit Default Swaps

FIN 401- GROUP PROJECT #2 Credit Default Swaps - owned...

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Credit Default Swaps (CDS) The reason we chose CDS is because we feel that anyone in Finance should have an understanding of what they are and why they played such an important role in the financial crisis in 2008. First off, a credit default swap is a contract in which buyer receives protection if a credit instrument goes into default. Because CDS weren’t regulated they were traded and traded that it was very difficult to keep track of who
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Unformatted text preview: owned what. They allow us to do two things; they allow the buyer to hedge their bets or they allow the buyer to speculate on outside loans which his essentially a side bet just in case the borrower defaults. Swaps became so popular that in 2008, the SEC estimates that there were about $58 trillion CDS out in the market, which was about 4 times the U.S. GDP....
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This note was uploaded on 11/15/2011 for the course FIN 401 taught by Professor Staff during the Spring '08 term at Miami University.

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