INTRODCUTION

A Nation’s economy is basically pivoted by various economic structures and policies which aims to direct the operations of economic activities in the state in a system which leads to economic growth and  development.  The  fact  remains  that  to  ensure  consistency in  economic  growth  and development, policies geared towards expanding productive capacity is essential such as the exchange rate system. A volatile exchange rate system is seen to be epidermic to economic growth.

Volatility in the exchange rate indicates inceasant swings in the price of a nation’s currency as it relates to other foreign currencies at a particular period of time. A volatile exchange rate always occur when the country’s currency tries to achieve an equilibrium position at a rate that would enable investors to carry out foreign transactions in terms of trade or debt settlement.

Volatility in exchange rate majorly occurs over time in financial markets and among currency trading hence, it reflects the value of currency being traded at a particular period of time. Movements in exchange rate does not appear from out of nowhere but they are due from a passage of time and presaged by larger movements than usual, in its real sense, whether such movements have the same direction or the opposite, it is difficult to ascertain however, an increase in volatility does not usually presage a further increase. It may go back down again. Volatility does not measure the direction of currency price changes but merely their dispersion this is because the use of standard deviation or variable is adopted in determining volatility and the differences of the variables are squared so that negative and positive differences are combined into one quantity (Farlex, 2012) Two currencies with different volatilities may have the similar expected return however; the currency with higher volatility will have larger fluctuations or swings in values over a period of time.

1.2         Statement of the Problem

Although the problems of sub-Saharan African countries are enormous which ranges from economic, social to resource problems; however, in this research work, our attention shall be focused on exchange rate volatility and foreign direct investment considering empirical evidences from some sub-Saharan African countries.

The ECOWAS community proposed a policy to adopt an integrated monetary system in which a common currency shall be used by ECOWAS countries in order to foster trade relationship and minimize volatility in the exchange rate system. The African market economy has suffered severe distortions in the price system due to pressure from the world financial market because of the adoption of the use of the US dollar in financing transactions in the SSA region.

Exchange rate volatility has also created difficulty for the central banks in SSA countries in making decisions of interest rate and money supply into their economy so as to efficiently regulate the financial sector of their economy risky environment for doing business coupled with insecurity problems.

The recent fall in the oil price which has led to decrease in the foreign reserve of most countries in the Sub-Saharan African (SSA) alongside severe economic crunch affecting the inflow of Foreign Direct Investment (FDI) has increased the rate/degree at which exchange rate changes hence, more volatile and risky for investors to invest their resources in SSA countries. Therefore, volatility in the exchange rate has been a serving issue in SSA countries which as impacted significantly on FDI.

1.3         Objective of the Study

The broad objective of the study is to examine the relationship between exchange rate volatility and foreign direct investment in Sub-Saharan Africa. The specific objectives include:

1.4         Research Questions

The following research questions are tested:

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