Understanding the Role of Protection Sellers in CDS

In the context of credit derivatives, particularly credit default swaps (CDS), investors use these instruments to manage the risk associated with credit exposure. A CDS contract allows an investor to transfer the credit risk of an underlying asset to another party in exchange for periodic payments. However, it's crucial to understand how the different parties involved in the contract interact and what risks they assume.

Assuming you are an investor contemplating using a CDS to hedge against the potential default of a bond issued by Company ABC. You are considering the role of the protection seller in this transaction. Which of the following statements accurately describes the responsibilities of the protection seller in a CDS?