UNDERSTANDING FINANCIAL INSTITUTIONS

The Company is a combination and variety of natural resources such as economic, labor, capital, and management (managerial skills) in producing goods and services in order to achieve certain goals. Various corporate objectives include: to get maximum benefit, ensuring the survival of the company, meeting the needs of the community, creating employment opportunities, and some financial management experts argued the company’s goal is to maximize corporate value or shareholder wealth maximization.

In general, companies can be divided into two, namely:
· The company’s first financial and
· The second, non-financial companies. Non-financial company is a manufacturing company that produces products in the form of goods such as: cars, steel. computer and or companies that provide non-financial services such as: transportation and computer programming. While financial companies, generally known as a financial institution, the company that provides services related to finance

1) Transformation or transfer of financial assets through the market.
Namely the transfer of funds and that have excess funds (surplus) to the party underfunded (deficit). This is a function undertaken by financial intermediaries (financial intermediaries), which is an important role and financial institutions. Services performed by banks, insurance companies, pension funds and finance companies.

2) Trading financial assets on behalf of customers.
Services performed by the broker (hi-ocher) to buy or sell securities on the orders of customers.

3) Trading financial assets for the benefit of its own
Services performed by the company’s securities (dealer) to buy and sell securities for their own corporate interests.

4) assist in the creation of financial assets to customers, and sell financial assets to other market participants. Services performed by the company’s underwriters in the issuance of shares.

5) Provide investment consulting to other market participants.

6) Manage the portfolio of other market participants (Fabozzi, 1994: 19).
Financial institutions can be defined as an entity whose assets primarily in the form of financial assets and bills can be stocks, bonds and loans, rather than in the form of real assets such as buildings, equipment and raw materials (Rose & Fraser, 1988: 4).

According to Law No. 14 of 1967 on Principles of Banking, which meant financial institutions are all bodies through activities in the financial sector and society to withdraw money and funnel it back into the community. Financial institutions lending to customers or invest funds in securities in the financial markets. financial institutions also offer a variety of financial services and protection from insurance, pension plan to sell the storage of valuables and providing a mechanism for the payment of funds and transfer of funds.

The process transfers that occur between parties who have extra money to those who need funds in general is in need of an intermediary or mediator financial institutions. Intermediation process gives also key benefits:

· First, it provides the opportunity for the unit to invest surplus funds and make a profit, thus helping to mobilize funds to not idle.
· Second, the process will move the risk from savers and surplus units to financial institutions and the users of funds. So the existence of financial institutions is intended to allow the allocation and transfer of funds and the surplus units to the deficit units can be run more efficiently.

Financial institutions in the financial world to act as an organization that provides financial services for its customers, which in general is governed by regulatory agencies of the government’s finances. The general form of the financial institutions are including banking, building society (a type of co-operatives in the UK), Credit union, stock brokerage, asset management, venture capital, cooperatives, insurance, pensions, mortgages and businesses alike. Financial institutions in Indonesia is divided into 2 groups: the banks and financial institutions non-bank financial institutions (insurance, mortgages, securities firms, financial institutions, etc.).

The function of this financial institution provides services as an intermediary between the owners of capital and money markets are responsible for channeling funds from investors to companies in need of funds. The presence of these financial institutions that facilitate the flow of circulation of money in the economy, where the money collected from individual investors in the form of savings, so the risk of these investors turn to financial institutions who then distribute these funds in loans owed to the needy. This is the main objective of the institution to generate income depositors.