Yes it will affect fuel economy. It will be a plug in your exhaust with a wire sticking out of it.
I can't remember if it's before or after the cat for OBDII cars but you should be able to spot it right away.
You'll need an open end wrench and thats about it, once it's out follow the wire up to a circle connector and twist it out. Install is just a reversal of those steps.
You've also got to figure out which bank it is, There are two on the 540i so it can be the right one or the left one.
95 530i|Modifications - Work.