How did the credit default swap market further strain market conditions?
The credit default swap (CDS) market has been estimated to range from US$35 billion to more than US$65 billion in notional or face value. This market has grown massively in the last five to 10 years as market participants sought further derivative financial instruments to use as a means to manage (or exploit) credit risk. The buyer of a CDS generally is looking to mitigate credit risk exposure triggered by a default or other defined negative event. Sellers assume the default risk for a premium generally by executing a transaction in the OTC market (these instruments are not exchange-traded).
