| Since the 1970's of 20th century, the financial industry has undergone enormous changes in western countries. The emerging development of financial derivatives is one of the most stunning changes. According to Statistics from the international clearing bank (BIS), the turnover of exchange-traded in inside market has been upwards of 207 trillions of US dollars at the end of 2003.The definition of the supervising committee of the Basel bank is, " that financial derivatives are a kind of contract and its value will be decided by the value of an or several underlying assets or index." Financial derivatives come from the traditional financial instruments and its' value is based on the price of the underlying instruments such as foreign exchange, deposits and loans, stocks, bonds, and stock index etc. On the international financial market financial derivatives have many varieties of products, but the most basic form of derivatives are forwards, futures, options and swaps. Furthermore, the more complicated products can be combined by these basic derivatives.Financial derivatives play important functions in the world financial market: They provided the end user better know how to manage and hedge its business related financial risk. The more rapid and deepes development of financial derivatives reflects the bankers desire to meet the end user's need to better hedge risk and also reflects that financial circles have the ability to innovate to meet market needs.----general accountancy's office in the United States The main function and performance of financial derivatives is to hedge and transfer risk, to find the real price of assets, to raise the money by low cost and to make the resources of financial market more efficient.The development financial derivatives is an inevitable choice for China Construction Bank in the future, for the following reasons:Firstly, during competition with other banks in China, especially with foreign capital banks in China, China Construction Bank must develop financial derivatives to avoid the loss of very important customers and to meet its VIP customer's needs for transferring risks and hedging. The foreign capital bank has the advantage of experience in service, construction, innovation, and risk management of the financial derivatives since China entered into the WTO.Secondly, it is important for China Construction Bank to expand the intermediary business species, increase income and improve income construction on the current intermediary business; which being small scale with little variety reduces CCB competitive ability. The development of financial derivatives will push the traditional business to develop such services as RMB deposits, foreign exchange deposits, international settlements, selling and buying foreign exchange against RMB etc. Thirdly, it is helpful for China Construction Bank to improve their level to manage the assets and liabilities and to move forward into the risk management sector of the modern international commercial bank.As one of four biggest state-owned commercial banks, China Construction Bank occupies a bigger market share in Chinese banking. However being managed under a planned economy for many years, its method and concept of management is relatively laggar. Capital funds are not up to standard,bad asset rates are high and administration construction is not rational. If we look at the origination of profit from china construction bank, it indicated that all profits come from the end products. Therefore if China Construction Bank wishes to hit their target of becoming an all-around joint-stock commercial bank, Which will lead china in creating value for shareholders out of all Chinese banks within 10 years, being in the lead position within the Asia market, and having the strategy of the modern share system within the commercial bank of the international competition ability, reformation must be done by China Construction Bank.To develop financial derivatives, the bank must first development how the financial derivatives should...
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