Answer: pays the notional value of the security in the event of default.

## Explanation In a credit default swap (CDS): - The **protection seller** takes on the credit risk and agrees to compensate the protection buyer if a credit event occurs - The protection seller **receives periodic premium payments** (not a one-time upfront payment) - When a credit event occurs, the protection seller **pays the notional value of the security** (or the loss amount) to the protection buyer - The protection seller is **short credit risk** (not long), as they benefit when the reference entity's credit quality improves Therefore, option C is correct: the protection seller pays the notional value of the security in the event of default.

Author: LeetQuiz Editorial Team