What is the default swap loan?
credit default swap (CDS) is a contract that converts financial risk from one side to the other. In the default loan swap, the buyer of the seller applies throughout the life of the contract in exchange for the risk of the seller. If the credit tool is connected to the default default credit failure value, it is radically devalued or undergoes another catastrophic financial event, the seller pays the nominal value of the credit tool to the buyer.
We put simply, let's say John borrows some money from Suzy. Suzy could decide not to take over the risk of the default settings, so he approaches Julian and negotiates a credit default swap. Suzy pays Julian premium in exchange for his prerequisite for the risk of the loan. If John successfully repays the loan, the contract will end. However, if it decides not to pay, Julian must pay suzy the nominal value of the loan.W banka, hedge funds and other financial institutions to transfer the risk of corporate debt, mortgages, municipal debtPiS and other credit instruments. Until 2007, the Swap's starting market has grown to twice the size of the US stock market, and since this industry was largely unregulated, some serious problems began to appear.
One of the biggest problems with the default swap is that it should function as insurance, but not, because the insurer, the seller, is not obliged to provide proof of the ability to cover the debt in case of failure. In addition, the contract may be transferred, so while the original seller could be able to cover the credit, people may not be able to be able to.
If you want to return to the above example, if Julian turns and sells Mary and John's agreement, Mary could be able to repay Suzy. Mary could even sell a contract of another party, which makes Suzy more difficult to trace the contract holders in the event of the starting state.
shopCalculation in this derivative credit derivative product began to be recognized as a problem in 2008, when several financial companies, including the insurance giant AIG, realized they could not cover their swaps for credit. The problem was deteriorated by the crisis of the US credit crisis, as thousands of house owners failed on their mortgages and put intensive pressure on the banking industry.