a financial instrument whose value is derived from the value of an underlying asset is called a
Derivative (finance) In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying".[1][2][3] Derivatives can be used for a number of purposes, including insuring against price movements (hedging), increasing exposure to price movements for speculation or getting access to otherwise hard-to-trade assets or markets.[4] Some of the more common derivatives include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt obligations and credit default swaps.[1] Most derivatives are traded over-the-counter (off-exchange) or on an exchange such as the Bombay Stock Exchange, while most insurance contracts have developed into a separate industry. After the financial crisis of 2007-2009, there has been increased pressure to move derivatives to trade on exchanges. Derivatives are one of the three main categories of financial instruments, the other two being stocks (i.e., equities or shares) and debt (i.e., bonds and mortgages).[1] The oldest example of a derivative in history is thought to be a contract transaction of olives, entered into by ancient Greek philosopher Thales, and attested to by Aristotle, who made a profit in the exchange.[5] Bucket shops, outlawed a century ago, are a more recent historical example.
Debits and credits Whether a debit increases or decreases an account depends on what kind of account it is. For instance, an increase in an asset account is a debit. An increase in a liability or an equity account is a credit.