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Currently there is adequate shareholding constituency in Ethiopia allowing the establishment of share companies. There are more than 60,000 shareholders in Ethiopia where there is no market for share trading and re-trading implying that there is high share illiquidity. If this illiquidity persists, the existing shareholders tend to frustrate and new shareholders will be discouraged to get into share company business which in effect hinders the growth of investment and private sector involvement in the Economy (Mohammed, 2010). All the mentioned conditions signify the need for establishing financial market in Ethiopia. However, establishing financial markets is not an easy exercise; rather it is constrained by several factors in the environment such as political, economic, social, and technological.
JBAS Vol. 4 No. 1 June 2012 5 Objectives of the study The main objective of this study is to review pertinent literatures on the establishment of financial markets, challenges and opportunities. Specifically the research attempts to: Find out whether Ethiopia would benefit from establishing financial market. Assess whether there is a favorable environmental foundation for the establishment of financial market. Identify the challenges and opportunities of establishing financial markets in Ethiopia. Methodology This study fully relied on secondary data obtained from various sources. These sources mainly include publications of scholars from academia, financial institutions, Addis Ababa Chamber of Commerce and Sectoral Association (AACCSA), and articles posted in different websites. The research approach applied is a mix of qualitative and quantitative methods depending on the nature of data. The qualitative approach as used in this article is characterized by more of descriptive and aimed at creating a common understanding of the subject being studied. On the other hand, the quantitative approach is based on numerical observations and aims at generalizing a phenomenon through analysis of the quantitative data. Introduction to financial markets The Reserve Bank of Australia (, cited in Amare, 2008), defines financial markets as ―a generic term for the markets in which financial instruments are traded. Financial instruments
6 Tiruneh Legesse have no intrinsic value of themselves‖. They represent a claim against the income or wealth of a business firm, household, or unit of government represented usually by a certificate of receipt or other legal document and usually created by the buying of securities –both debt and equity. The four main financial markets are the share or equity market, the fixed interest or bond market, foreign exchange market, and the derivatives market.