Rift Valley University Harar
Campus
Department of Accounting And Finance
Individual Assignment for the Course Financial
Institution and Capital Market
1. Financial Markets Available in Ethiopia and Types of Securities Issued:
In Ethiopia, the primary financial markets available are:
a) Banking Sector: The banking sector in Ethiopia is dominated by state-owned and private
commercial banks. These banks issue various types of securities, including:
- Deposits (savings, current, and time deposits)
- Loans (short-term, medium-term, and long-term)
- Bonds (government bonds and corporate bonds)
b) Insurance Sector: The insurance sector in Ethiopia is regulated by the National Bank of Ethiopia and
consists of both state-owned and private insurance companies. These companies offer various insurance
products, such as life insurance, general insurance, and reinsurance.
c) Microfinance Institutions: Microfinance institutions in Ethiopia provide financial services,
including loans, savings, and money transfer, to individuals and small businesses who may not have
access to traditional banking services.
d) Informal Financial Markets: Ethiopia also has a thriving informal financial market, which
includes traditional savings and credit associations (e.g., Iqub and Idir), money lenders, and informal
remittance services.
The different types of securities issued by these financial institutions in Ethiopia include:
- Deposits (savings, current, and time deposits)
- Loans (short-term, medium-term, and long-term)
- Bonds (government bonds and corporate bonds)
- Insurance products (life insurance, general insurance, and reinsurance)
- Microfinance loans and savings products
2. Basic Criteria for Establishing Financial Markets:
The basic criteria for establishing financial markets include:
a) Legal and Regulatory Framework: A well-defined legal and regulatory framework is essential to
ensure the proper functioning and stability of the financial markets. This includes laws and regulations
governing the establishment, operation, and oversight of financial institutions and markets.
b) Market Infrastructure: Effective financial markets require a robust infrastructure, including trading
platforms, clearing and settlement systems, and information dissemination mechanisms. This
infrastructure ensures the efficient and transparent execution of transactions.
c) Investor Participation: The participation of diverse investors, including individuals, institutional
investors, and foreign investors, is crucial for the development of financial markets. This helps to ensure
market liquidity and price discovery.
d) Issuer Participation: The presence of various issuers, such as the government, corporations, and
other entities, is necessary to provide a range of investment opportunities and instruments for investors.
e) Intermediaries and Service Providers: Financial markets rely on the presence of intermediaries,
such as brokers, dealers, and investment banks, as well as other service providers, such as custodians,
registrars, and credit rating agencies, to facilitate transactions and provide support services.
f) Transparency and Disclosure: Effective financial markets require a high level of transparency and
disclosure, ensuring that investors have access to accurate and timely information about the market,
issuers, and their financial instruments.
g) Investor Protection: Robust investor protection mechanisms, such as regulations governing market
manipulation, insider trading, and investor grievance redressal, are essential to build investor
confidence and participation in the financial markets.