Significance of Flow of Funds Accounts:

Flow of funds accounts provide useful framework for classifying and measuring the sources and uses of both internal and external funds.  This framework shows clearly the relationships among various sectors of the economy.  It provides historical data on each sector's saving, investment, lending, and borrowing.  Financial analysts use these data to make estimates of prospective financial flows, especially when forecasting interest rates.  Other applications include the testing of hypotheses concerning the portfolio behaviour of consumers and business firms and the relationships of credit flows to total spending on goods and services. 

1) A financial system comprises a set of complex and closely connected or inter- mixed institutions, agents, practices, markets, transactions, claims and liabilities in the economy.

2) A financial system consists of (i) financial institutions, (ii) financial markets, (iii) financial instruments, and (iv) financial services.

3) Financial institutions are business organisations that act as mobilisers and depositories of savings and as purveyors of credit or finance.

4) Financial intermediaries provide key financial services.

5) Financial intermediaries provide key financial services.

6) Equilibrium in a financial system is established at that rate of interest where the demand for funds equals the supply of funds.

7) The functions of a financial system are to establish a bridge between savers and investors and thereby to enlarge markets over space and time, and to allocate financial resources efficiently for socially desirable and productive purposes.