Advantages of Credit Default Swaps in Credit Risk Management

ABC Corporation is a multinational company that has several outstanding bond issues across different jurisdictions. Recently, the company has faced some financial difficulties due to a downturn in the market. Considering this scenario, the risk management team at ABC Corporation is evaluating various methods to mitigate the credit risk associated with its bond portfolio.

One key approach they are considering is to utilize credit derivatives to hedge against the potential default risk. They are particularly focused on understanding how credit default swaps (CDS) could help in protecting their investment. The team plans to analyze the implications and effectiveness of employing such instruments.

Which of the following best describes a key advantage of using credit default swaps (CDS) in managing credit risk in ABC Corporation's bond portfolio?