This thesis attempts to investigate and explain the word- formation processes of A wngi,rnone of the Central Cushitic (Agew) languages. Derivation and Compounding have beenrndealt as the word formation processes. The derivational process included noun, verb,rnadjective and adverb derivations. These largely represent the non-inflectional aspects ofrnmorphology.rnThe section on derivation describes the different lexical categories that are derived byrnadding various suffixes to bases, stems or roots belonging to different lexical categories.rnThe addition of the suffixes shows different phonological, morphological, syntactic andrnsemantic properties of the language.rnThe section on compounding describes the different lexical categories that are formed byrncombining two words. The gaps exhibited in the process of combining different lexicalrncategories are also shown. The process of compounding also shows the differentrnphonological, syntactic and semantic properties operating in the language.rnThe study also attempts to describe the position of the head of derived and compoundrnwords. In both derivation and compounding, the head is detem1ined by its syntactic andrnsemantic features. The head is considered to be the constituent, which has either the samernsyntactic feature as the whole word or the one, which determine the central meaning ofrnthe derived and compound word.