A Credit Default Swap (CDS) is a financial contract that allows one party to transfer the credit risk of a borrower to another party. Essentially, it acts like insurance against the default of a borrower, such as a corporation or government. If the borrower fails to make payments, the seller of the CDS compensates the buyer for their loss. Investors use CDS to hedge against potential losses or to speculate on the creditworthiness of a borrower. The price of a CDS reflects the perceived risk of default, with higher prices indicating greater risk. This market plays a significant role in the broader financial system.