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Finance Services

ROLE OF FINANCIAL INSTITUTIONS

Financial institutions as the agency conducting activities in the financial sector has a role as follows:

1) Transfer of assets

2) Liquidity

3) Allocation of income

4) Transaction (Ycager & Seitz, 1) 89: 5)

1. Transfer of Assets

Financial institutions have assets in the form of “promises to pay” or be interpreted as a loan to the other party for a period that is set according to the needs of borrowers. Asset finance funds obtained from private savings. Thus, the financial institution is actually just shift or move liability borrower into an asset with a maturity as desired savers. The process of transferring liability into an asset called transmutation asset.

2. Liquidity

Liquidity relates to the ability to obtain cash in times of need. Some secondary securities purchased business sector and households primarily intended for liquidity purposes. Secondary securities such as savings deposits, time deposits, certificates of deposit issued by commercial banks provide the level of security and high liquidity, in addition to the extra income.

3. Revenue Reallocation

In fact, many individuals in the community have adequate income and realize that in the future they will be retired so income will obviously be reduced. To face the future is set aside or allocate their income in preparation for the future. To do so, in principle, they can just buy or store items such as: land, houses and so on, but the ownership of secondary securities issued by financial institutions, such as savings programs, deposit, retirement plans, insurance policies or the Shares-stocks is much better if compared with the first alternative.

4. Transaction

Secondary securities issued by a financial intermediary such as checking accounts, savings (deposits, etc., are part and payment system. Giro or certain savings accounts offered by banks in principle can function as a bank. Savings products are purchased by households and business units to facilitate them to exchange goods and services. In particular, secondary economic unit purchase securities (eg demand deposits) to facilitate the settlement of financial transactions daily.

Thus, financial institutions act as financial intermediaries that provide services to facilitate monetary transactions.