222

$show=home

Welcome to Accounting Education

The Accounting University with 3400+ Accounting contents as study material which can watch, read and learn anyone, anywhere.

Start your studies

$show=home

Latest $type=three$count=6$author=hide$comment=hide$label=hide$date=hide$show=home$s=0

Journal Entries $type=three$count=6$author=hide$comment=hide$label=hide$date=hide$show=home$s=0

Balance Sheet $type=three$count=6$author=hide$comment=hide$label=hide$date=hide$show=home$s=0

Credit Default Swap Simple Explanation

 In following points, I am trying to explain  a finance term "Credit Default Swap". With this simple explanation of credit default swap, I hope that credit default swap will become easy and understandable to all non-experts in finance field.


1. # Suppose, I gave $ 10 million loan to A.  This is my asset. If A will become defaulter, what will happen with my $ 10 million investment in the form of loan. It will become Zero. I am also noble personality and I can not quarrel with A. So, I contract with an insurance company and buy credit swap policy. Now, I am tension free. If my borrower will not repay my loan, my $ 10 million loan will be repaid by insurance company. So, like interest rate swap, credit default swap is exchange agreement between insurance company and lender. Insurance company takes the risk of loss due to loan defaulting. Lender will be responsible to pay the amount of CDS policy.

2. # Suppose, I sell this credit default swap (CDS) policy to B and B sells CDS policy to C. (By this way CDS will become a market product and speculators can deal in this for getting trading earning). Now C is buyer of policy and B is the seller of CDS policy. Borrower of $ 10 million loan will become reference entity. C ( Buyer) will pay of quarterly premium. Suppose A ( Borrower or referring entity) defaults on the loan. Now, it is duty of B ( Seller) to pay the par value of $ 10 million to C ( Buyer). By this C can get protection.

3. # Suppose, XL bank sells CDS to C for getting annual premium and covering loss of A company's bonds. In 4th year, A company declares that it has not capacity to pay the amount of bond. In same year, XL bank also defaults. At that time C will face loss of CDS contract.

4. # If you read the above three points deeply, you have understood about the credit default swap in real sense. Now, come and go to more deep of credit default swap with the help of following presentation. Credit Swap contract is done with good credit rating organisation like American International Group, Inc (AIG). AIG is largest seller of CDS financial product.It can easily cover risk of defaulting on loan by getting premium from lots of lenders whose borrowers are non-defaulter.



Comments

: 1
In comment, you can give your feedback, reviews, ideas for improving content or ask question relating to written content.

 


Name

access,2,account,86,accountant,95,Accounting,685,accounting definitions,99,accounting ebook,3,Accounting education,85,Accounting Education Ads Help,1,accounting procedure,2,accounting process outsourcing,2,Accounting Software,52,advance,3,advertising,6,africa,7,Amalgamation,6,amendments,16,Amortization,1,announcements,62,Annuity,2,assets,53,audit,47,auditing,41,Australia,2,B.Com.,22,balance sheet,88,bank,111,Bank reconciliation,12,banking,33,basic accounting,110,BBA,1,benefits,13,best,50,bill,12,black money,3,blog,12,bloggers,7,book keeping,4,bookkeeping,3,Branch Accounting - full tutorial,8,budget,35,Budget variance,13,business,65,businessman,9,CA,30,calculator,4,canada,3,capital,72,capital budgeting,27,career,21,cash,40,cash book,8,cash flow statement,11,Chiense,1,children,13,china,6,class,3,coaching,2,coins,2,college,6,commerce,10,commerce students,7,company,36,computer,9,computer accounting,1,conference,4,Contact vinod kumar,1,Control Your Spending,27,corporate accounting,69,cost,160,cost accounting,195,cost center,8,cost centre,1,CPA,2,credit,18,credit card,11,cs,10,currency,35,data,11,Debit and credit,17,debit cards,1,debt,62,debtor,21,degree,6,depletion,2,depreciation,38,Diwali Messages,12,documents,4,dollar,5,domain,3,Downloads,3,Dubai,1,e-accounting,17,earning,17,education,246,Education Loans,6,email,15,employee,4,EPF,2,ERP,7,euromoney,1,examination,7,excel,17,excise duty,6,expenses,65,facebook,7,factor of loan,1,fans,2,feature,32,fifo,5,FII,4,fiji,1,finacle,1,finance,823,Finance Journal Entries,6,Financial,134,financial accounting,147,Financial Statements,4,fire insurance,3,flickr,2,flow,4,forensic,4,forex,21,formula,8,france,1,fraud,6,free,2,fun,34,function,1,fund,48,GAAP,36,GDP,1,gdr,5,germany,1,gold,7,goodwill,4,goodwill accounting,3,google,34,google apps,3,google apps,1,google base,1,google buzz,1,google calendar,1,Google docs,38,google finance,3,google fusion tables,1,google talk,5,govt.,5,GST,33,guide,85,health,6,Hindi,2,Hindi Language,3,history,3,holding company,3,How to treat FBT in Tally 9,1,HRA,3,ICAI,11,ICAWI,3,ICICI Bank,1,IFRS,11,income,17,income statement,19,Income Tax,8,India,57,indian railway,1,Indonesia,1,inflation,4,inflation accounting,3,infographics,8,information,7,inspiration,176,insurance,14,insurance accounting,2,Intangible,3,interest,26,international,7,Internet,40,Introduction of Tally 9,1,inventory,41,investment,135,investment in Shares,6,invoice,3,IT,1,Japan,1,Job costing,4,journal entries,144,Journal Entries eBook Help,4,Kalculate,1,keyboard,3,kuwait,2,laptop,2,law,4,LBT,1,learning,36,lease,5,lecture,11,ledger,17,leducation,1,Leverage Analysis,7,liabilities,16,lifo,3,linkedin,1,loan,74,logical point,1,loss,5,loss of profit,1,M.Com.,5,m.phil,2,malaysia,3,management accounting,129,manual accounting,4,manufacturing account,1,market,11,marketing,3,mastercard,2,material,13,MBA,14,MCA,1,media,4,migration,2,mobile,9,money,61,ms word,3,ms. excel,14,multi currency in tally 9,1,Multicurrency Accounting,3,mutual fund,30,national security,1,new and sacrifice ratio,1,new york times,1,new zealand,1,news,1,NGO,5,nonprofit-accounting,6,North Georgia Mountains,1,Notification,1,NPV,17,NSE,1,odbc,2,office,10,oman,1,online application,2,online accounting,11,Online Accounting Course,6,otcei,1,pakistan,3,parents,3,Partnership,1,pay pal,3,pdf,4,Personal Finance,6,pie chart,1,pie chart of income,2,pnb,5,podcast,1,ppf,1,presentation,10,price,7,privacy policy,2,prof. vinod kumar,13,profit,24,profit and loss account,12,project management,11,provision,14,purchase,9,puzzles,2,quickbooks,3,Quote,22,quotes,42,quotes of svtuition,1,rating agency,2,ratio analysis,34,RBI,7,readers,13,real estate,13,rectification of errors,11,remote control,2,reports,10,reserves,8,responsibility accounting,4,retirement,2,revenue,3,Revenue reserves,2,review,7,risk,11,rupees,9,salary,5,sale,12,SAP,3,saudi arabia,1,saving,19,sbi,9,scholarship,2,school,1,SEBI,13,security,30,service tax,23,share,20,share trading,15,Shares,16,shri lanka,3,singapore,2,sms,6,social accounting,7,society,5,solution,219,South Africa,1,stock,24,stock exchange,22,structure,6,student,39,students,70,study,21,subsidiary company,2,svtuition,14,swiss bank,2,tally,100,tally 9,8,Tally 7.2,8,Tally 9,42,Tally.ERP 9,59,TallyPrime,1,tanzania,2,tax,94,Tax Accounting,30,TDS,15,teacher,62,teaching,112,technology,33,test,40,testimonial,15,testimonials,15,thailand,1,tips,60,trading,5,trading on equity,2,transaction,7,trend,12,trial balance,14,truthfulness,1,tuition,3,twitter,10,UAE,5,UGC - NET Commerce,13,UK,11,United Arab Emirates,1,university,9,usa,25,valuation,9,VAT,22,Video,36,Voucher and vouching,4,Wealth,8,wikipedia,25,working capital,29,youtube,14,
ltr
item
Accounting Education: Credit Default Swap Simple Explanation
Credit Default Swap Simple Explanation
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfTJ5hzKW43tpqyd-MU__gZtkWGDZzDNjpRUd-nNTV9OfUKNYMS15zI1zyXBLQL1FOobaSUR2rRRpH0XEAnqc3fVFRwhZ6yPQ0UOLzSiIimFWKIhyUojWvnq__hDDXi-aAhziLjnwOKtRT/s640/cds.PNG
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfTJ5hzKW43tpqyd-MU__gZtkWGDZzDNjpRUd-nNTV9OfUKNYMS15zI1zyXBLQL1FOobaSUR2rRRpH0XEAnqc3fVFRwhZ6yPQ0UOLzSiIimFWKIhyUojWvnq__hDDXi-aAhziLjnwOKtRT/s72-c/cds.PNG
Accounting Education
https://www.svtuition.org/2011/06/credit-default-swap-simple-explanation.html
https://www.svtuition.org/
https://www.svtuition.org/
https://www.svtuition.org/2011/06/credit-default-swap-simple-explanation.html
true
2410664366776677676
UTF-8
Loaded All Posts Not found any posts VIEW ALL Reply Cancel reply Delete By Home PAGES Contents View All RELATED CONTENTS FOR YOUR LEARNING Topic ARCHIVE SEARCH ALL POSTS Not found any post match with your request Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS PREMIUM CONTENT IS LOCKED STEP 1: Share to a social network STEP 2: Click the link on your social network Copy All Code Select All Code All codes were copied to your clipboard Can not copy the codes / texts, please press [CTRL]+[C] (or CMD+C with Mac) to copy