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Funded credit default swap

A credit default swap in which the protection seller makes an initial payment that is used to settle any credit events. A funded credit derivative often takes the form of a credit-linked note issued by a special purpose vehicle or by a credit derivative dealer itself. The main advantage of a funded credit default swap is that the protection buyer is not exposed to the counterparty risk of the protection seller. Credit-linked notes can also be bought by many investors that are not permitted to enter into an unfunded credit default swap.

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