In the context of Credit Default Swaps (CDS), which of the following statements best describes their function?
1
A financial derivative that allows investors to hedge against currency fluctuations in international trade.
2
A financial instrument that allows an investor to swap or offset their credit risk with another investor in case of a borrower default.
3
An agreement between mutual funds to buy and sell corporate bonds to improve liquidity in the bond market.
4
A type of insurance that protects investors from fluctuations in bond prices due to interest rate changes.