Weighing up the credit risks

Credit derivatives have been a rapidly growing market and liquidity has increased to the extent that banks ' formerly the major user of credit derivatives ' now represent less than 50% of the trading in these instruments.

Hedge funds, insurance companies, and others now represent the majority of traders in this market.

The basic credit derivative product is the credit default swap (CDS). Think of it as an insurance contract which, instead of insuring your car, you are given insurance on a compa