Mengistu Bogale (PhD)Milliyon Legesse2026-03-032026-03-032025-09https://etd.aau.edu.et/handle/123456789/7789This research examines the effects of Ethiopia's transition to a floating exchange rate system in July 2024 on investment trends. A mixed-methods design integrates macroeconomic statistics from the NBE, IMF, and World Bank with sectoral data from the Ethiopian Investment Commission, supplemented by qualitative stakeholder perspectives. Foreign direct investment increased by 13.2% year-on-year, with EIC data indicating significant inflows into agro-processing and textiles, rising by 21.5% and 18.7%, respectively. Conversely, domestic investment contracted, as gross fixed capital formation decreased from 7.6% to 2.8%, influenced by increasing input expenses and exchange rate instability. Imported inflation reached a maximum of 31.8%, disproportionately impacting SMEs and import-reliant industries. The study suggests that in the absence of hedging mechanisms or focused policy interventions, Ethiopia's liberalized system may not achieve consistent, widespread investment benefitsen-USEthiopiafloating exchange rateforeign direct investmentdomestic investmentexchange rate volatilitycompetitive effectsuncertainty effectThesis