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prices can be adjusted to changes in prices. Remittance is one of the rapidly emerging sources ofprivate capital in developing countries. As indicated by Ruecker (2011) in 2008, Ethiopiarecorded an inward remittance flow of 387 million USD as compared to the outward remittanceflow of 21 million USD. Remittances offer a promising and single potential for increasingdomestic savings and fostering domestic investment. A developed financial market with a varietyof financial instruments will increase the overall attractiveness of Ethiopia as a place forinvestments, especially for Diaspora.Leads to improved corporate governance and promotion of specializedfinancial institutions and servicesFinancial market development necessitates the creation of a legal and regulatory frameworkincorporating increased transparency and information dissemination. It is imperative to considerthat establishing financial markets warrants paying due attention for fiscal and regulatoryenvironment, improvement of corporate financial reporting and disclosure, and the promotion ofspecialized financial services and institutions such as stock brokerage firms, money marketfirms, investment banks, leasing companies, etcRewards sound economic policies and create tools to conduct monetary policyIn recent decades, a well-developed securities market has been the principal channel throughwhich governments carry out their fiscal and monetary policies to stabilize the economy, avoidhyperinflation, shape the public borrowing and spending plans, growth of jobs, production andpricing of goods and services. If open-market operation is not available, the only effective toolsare direct credit controls, ceilings on loans and interest rates, as well as reserve requirementmanipulations. Also, deficit financing is carried out by either borrowing directly from theNational Bank or by selling bonds to commercial banks. Consequently, deficit financing putspressure on the money supply and leads to inflationary pressures. As a result, financial repression
is common in countries with banking-oriented financial systems. Full-scale financial sectorreform (liberalization) may be impossible unless the economy has well-developed securitiesmarkets (Asrat, 2003). Help in resource allocationIn a market economy, issues of securities help raise capital for projects whose outputs are in thehighest demand by society, and those enterprises which are most capable of raising productivity.One of the most pressing issues for developing countries is to channel existing scarce resourcesinto productive investment so that they can stimulate productivity, create employment, provideindividuals and enterprises with basic utilities, contribute to efficient natural resourcemanagement and ultimately maximize overall health of the economy (Dahou, Omar and Pfister,2009).