Effect of Foreign Direct Investment and Foreign Portfolio Investment on Foreign Exchange Rate in Nigeria

Abstract

Considering that the Net Inflow of Foreign Investment in Nigeria in the last thirty years from 1991 to 2020 is a negative Net worth and the Exchange rate has been on a downward slide within the same period, this paper examines the respective effect of Foreign Direct Investment and Foreign Portfolio Investment on the Nigerian Foreign Exchange rate using Official CBN rate and Bureau De Change (BDC) rate as proxies. Secondary Data used were sourced from the Central Bank of Nigeria and the World Bank, and the Data were analysed using time series and Multiple Linear Regression tools. The result shows that Foreign Direct Investment and Foreign Portfolio Investment have the same effect on the Nigeria Foreign Exchange rate. The findings show that both have a very weak positive effect on Nigeria Foreign Exchange The result also shows that both have a moderate negative effect on CBN Official Exchange rate and the Bureau De Change rate and recommended that more of the effort of policymakers relating to the foreign exchange should be channeled toward strengthening the purchasing power of the Nigeria currency more.