What are the basic requirements or an effective financial system?

Answer 1

This answer requires an opinion, With that said, an effective financial system usually has a currency that is sound and which investors domestically and in foreign markets have positive reasons for buying that currency, such as buying the Japanese Yen or the US dollar. It is termed a positive in that aside of speculation, trading in the currency markets, the reason is that they have intentions of making purchases in the country's products which normally requires using that country's currency. As an example, if Japan wishes to buy US lumber, then the price is generally in dollars. The potential buyer in Japan must buy, for the most part, the lumber in US dollars.

Another requirement for an efficient financial system, is a good degree of stability in the economics and the existing financial market of a particular nation. Using the term efficient in the last sentence is not redundant. Sustaining and growing an efficient set of markets usually begins by having at least the prospect of a better one.

Aside from what is mentioned previously, a primary requirement is a stable government, that believes in the value of free trading. And, has a strong record of maintaining one.