How to build an international finance course: a complete guide for lecturers

Central question: How do international monetary arrangements, cross-border flows and exchange-rate regimes shape financial decisions?

International Finance needs a map before it needs equations. Students should see how trade, investment, financing and reserves connect through the balance of payments, and why exchange-rate regimes change the constraints faced by firms, investors and policymakers. The aim is not to turn the course into macroeconomics, but to establish the institutional setting in which currency risk, capital flows and cross-border financing arise.

What this concept covers

• Current, capital and financial accounts and the logic of balance-of-payments accounting.
• Fixed, floating, managed and currency-board exchange-rate regimes.
• The international monetary system, reserve currencies and the role of the US dollar.
• Capital mobility, external imbalances and links between saving, investment and financing.
• How regime choice affects firms, investors and the policy environment.

Learning outcomes

By the end of this concept, students should be able to:

• Interpret a simplified balance of payments and identify the financial counterpart of a trade flow.
• Compare the financial consequences of fixed and floating exchange-rate regimes.
• Explain why a reserve or dominant currency matters for trade and finance.
• Identify channels through which external imbalances can affect financial conditions.

Supports Course Outcomes 1 and 2.

How to teach it

• Begin with one cross-border transaction and trace the accounting and cash-flow consequences.
• Use a short country comparison to contrast a peg, a managed regime and a floating currency.
• Ask students to separate accounting identities from behavioural claims.
• End with a one-page map linking firms, banks, investors, central banks and FX markets.

Case-style example

Meridian Appliances sells EUR 80 million of goods abroad, imports USD 35 million of components and borrows USD 20 million from an overseas bank. Its home country runs a managed float and reserves fall by USD 4 billion during the year. Students classify the flows, reconcile the direction of the financial account, then debate whether the reserve fall signals stress or deliberate policy. They discover that the same balance-of-payments data can support different diagnoses without additional evidence.

Where students struggle

Students often treat a current-account deficit as automatically bad, or assume the balance of payments can be in literal imbalance. Push them to distinguish an accounting identity from the sustainability of the financing pattern.

Reading and a quick check

Use the opening international monetary system chapters from the core text, then ask students to explain one country flow without using the words “good” or “bad.”

Where the applied work fits

Use a short calculation, case memo, model critique or board-style discussion here. The aim is to make the concept produce evidence without forcing an unrelated simulation into the session.

Where it leads

The next step is the market in which those cross-border claims are exchanged: the foreign exchange market.

Central question: How are currencies quoted, traded and settled, and what can go wrong when students mishandle the mechanics?

Exchange-rate analysis is only useful if students can move confidently between direct and indirect quotes, bid-ask spreads, cross rates, spot and forward transactions. This session should feel operational. The objective is to make quotation and settlement mechanics automatic enough that later hedging and parity problems are about judgement rather than avoidable arithmetic errors.

What this concept covers

• Spot and forward markets and the main participants in wholesale FX.
• Direct and indirect quotations, bid-ask spreads and cross rates.
• Base and quote currencies and the interpretation of appreciation and depreciation.
• Settlement timing, counterparty exposure and the scale of the global FX market.
• Why market conventions differ by currency pair and instrument.

Learning outcomes

By the end of this concept, students should be able to:

• Convert between direct and indirect exchange-rate quotations.
• Calculate a cross rate and identify the appropriate side of a bid-ask spread.
• Distinguish spot, outright forward and FX swap transactions.
• Explain how a change in a quotation affects a firm with a known currency payable or receivable.

Supports Course Outcomes 2 and 3.

How to teach it

• Use a short quotation drill before introducing strategy.
• Make students state the economic meaning of every answer, not only the number.
• Introduce one deliberately inconsistent quote and ask whether an arbitrage is possible after spreads.
• Use current BIS market material to give scale without turning the class into market trivia.

Case-style example

HarbourTech must pay JPY 1.2 billion in 60 days. The dealer quotes USD/JPY 151.20-151.50, EUR/USD 1.0830-1.0834 and EUR/JPY 163.85-164.30. Students compute the dollar cost of the payable, infer a cross-rate range, then test whether the direct and implied EUR/JPY quotes create a tradable arbitrage after spreads. Some groups will see a numerical gap; others will reject it once executable sides are applied. They discover why quote direction and bid-ask discipline matter.

Where students struggle

The most common errors are inverting the wrong quote, using the midpoint when a bid or ask is required, and describing a currency move without naming the numeraire.

Reading and a quick check

Pair the FX-market chapter with the latest BIS Triennial Survey summary. Quick check: give three quotes and require one sentence interpreting each from the firm’s perspective.

Where the applied work fits

Use a short calculation, case memo, model critique or board-style discussion here. The aim is to make the concept produce evidence without forcing an unrelated simulation into the session.

Where it leads

Once the mechanics are secure, students can ask whether spot, forward and interest rates are linked by arbitrage.

Central question: When should prices, interest rates, spot rates and forward rates line up, and what does it mean when they do not?

Parity conditions are the analytical spine of International Finance. Teach them as linked no-arbitrage and equilibrium relationships rather than four formulas to memorise. Covered interest parity is especially useful because students can construct a hedged borrowing and lending strategy. Purchasing power parity and uncovered interest parity are better treated as benchmark relationships with important empirical limitations.

What this concept covers

• Covered interest parity and the forward premium or discount.
• Uncovered interest parity as an expected-return condition.
• Purchasing power parity and the distinction between absolute and relative forms.
• International Fisher effects and links between nominal rates, inflation and exchange rates.
• Post-crisis covered-interest-parity deviations and balance-sheet constraints.

Learning outcomes

By the end of this concept, students should be able to:

• Construct and solve a covered-interest-parity relationship.
• Diagnose an apparent arbitrage and account for transaction or funding frictions.
• Compare what covered and uncovered parity assume.
• Explain why empirical deviations do not automatically invalidate the benchmark logic.

Supports Course Outcomes 3 and 4.

How to teach it

• Start with two risk-free deposits and a forward contract, then derive CIP from cash flows.
• Separate arbitrage from forecasting.
• Use one post-2008 CIP deviation example to show why institutional constraints matter.
• Ask students to state the assumptions that make each parity relation testable.

Case-style example

Northgate Bank can borrow USD at 4.8% and EUR at 3.1% for one year. Spot EUR/USD is 1.0900 and the one-year forward is 1.1120. Students compute the CIP-implied forward, design the apparent arbitrage and estimate the gross basis on a USD 10 million trade. Then add a 65 basis-point balance-sheet charge and a 25 basis-point credit line fee. One conclusion says arbitrage exists; another says it disappears for constrained dealers. Students discover why observed parity gaps require an institutional explanation.

Where students struggle

Students mix covered and uncovered parity, or use parity as a precise exchange-rate forecast. Make them label what is locked in, what is expected and what is assumed.

Reading and a quick check

Assign Du, Tepper and Verdelhan on CIP deviations in selected excerpts, with a short cash-flow replication exercise.

Where the applied work fits

Use a short calculation, case memo, model critique or board-style discussion here. The aim is to make the concept produce evidence without forcing an unrelated simulation into the session.

Where it leads

Parity provides benchmarks. The next concept asks what actually moves exchange rates when information, policy and risk change.

Central question: What moves exchange rates, and how should students use forecasts when no model dominates at every horizon?

This is where many courses either become too macroeconomic or too mechanical. A useful approach is to compare monetary, portfolio-balance, order-flow and global-risk channels, then make students use forecasts as scenarios rather than as precise point predictions. The discipline is deciding which variables matter for the decision horizon and what would falsify the view.

What this concept covers

• Interest-rate differentials, inflation, growth and monetary-policy expectations.
• Safe-haven demand, global risk appetite and the financial channel of the dollar.
• Capital flows, portfolio rebalancing and exchange-rate pressure.
• Forecasting approaches: market-implied, fundamental, technical and scenario based.
• Dominant currency pricing and implications for firms outside the United States.

Learning outcomes

By the end of this concept, students should be able to:

• Compare competing mechanisms for exchange-rate movements.
• Build a transparent exchange-rate scenario with observable drivers.
• Distinguish a forecast from a hedge decision.
• Explain how global monetary conditions can transmit through funding and trade channels.

Supports Course Outcomes 4 and 5.

How to teach it

• Give students the same macro news and ask for two opposing currency theses.
• Require a forecast range with triggers rather than one target.
• Compare a forward rate with a forecast and ask what each represents.
• Use a short memo format: view, evidence, invalidation condition, financial consequence.

Case-style example

Cresta Medical earns 45% of revenue in the euro area but reports in dollars. EUR/USD is 1.08. One team expects 1.15 after faster European growth; another expects 0.99 if US rates stay higher and global risk rises. Students estimate the effect on translated revenue, identify three observable triggers for each scenario, then recommend whether the treasury team should change hedging today. They discover that a strong forecast does not automatically imply a speculative hedge position.

Where students struggle

Students frequently confuse explaining an exchange-rate move after the fact with forecasting it beforehand. Require timestamped drivers and an explicit scenario that would prove the view wrong.

Reading and a quick check

Use the dominant-currency and exchange-rate-reconnect readings to contrast trade and financial channels.

Where the applied work fits

Use a short calculation, case memo, model critique or board-style discussion here. The aim is to make the concept produce evidence without forcing an unrelated simulation into the session.

Where it leads

Forecast uncertainty makes risk management necessary. Students next need the derivative instruments used to transfer that risk.

Central question: Which instrument changes which risk, and what trade-off is the firm buying when it chooses forwards, futures, options or swaps?

Derivatives should be taught as choices about certainty, flexibility, credit exposure and cost. Students need enough payoff mechanics to understand the instruments, but the important question is why one hedge is appropriate for a particular exposure and another is not. This is the bridge from market theory to treasury decisions.

What this concept covers

• Forward contracts and non-deliverable forwards.
• Currency futures and exchange-traded margining.
• Currency options, premiums and asymmetric protection.
• FX swaps and cross-currency swaps in funding and liquidity management.
• Natural hedges, leading and lagging and matching cash flows.

Learning outcomes

By the end of this concept, students should be able to:

• Calculate a basic forward hedge outcome.
• Compare forward and option payoffs for the same exposure.
• Identify when a cross-currency swap addresses funding rather than transaction exposure.
• Recommend an instrument based on exposure certainty, horizon and risk appetite.

Supports Course Outcomes 5 and 6.

How to teach it

• Draw payoff diagrams only after the commercial exposure is clear.
• Use a forward-versus-option decision with uncertain sales volume.
• Ask students to compare accounting cost, economic protection and liquidity implications.
• End with an instrument-selection matrix rather than a formula test.

Case-style example

Solstice Travel expects to pay EUR 6 million for hotel capacity in six months, but bookings could be only 60% of plan. The six-month forward is 1.105 USD/EUR and a EUR call with strike 1.11 costs 2.2% of notional. Students calculate dollar outcomes if spot ends at 0.98, 1.11 or 1.24, then repeat for 60% actual volume. Forward hedging is cheapest at full volume; options reduce over-hedging risk. Students discover that exposure uncertainty changes the best instrument.

Where students struggle

Students often pick the instrument with the lowest visible premium rather than the one that fits the exposure. Make the volume and timing uncertainty explicit before they compare prices.

Reading and a quick check

Use the core text derivatives chapter and a short dealer term sheet. Quick check: choose an instrument and state the risk it leaves behind.

Where the applied work fits

Use a short calculation, case memo, model critique or board-style discussion here. The aim is to make the concept produce evidence without forcing an unrelated simulation into the session.

Where it leads

With instruments in place, the course can turn to the most common corporate application: transaction exposure.

Central question: How much of a known foreign-currency cash flow should a firm hedge, with what instrument and under what policy?

Transaction exposure makes International Finance operational. Students should distinguish the exposure itself from management’s view of the currency. A disciplined treasury policy specifies what qualifies for hedging, the permitted instruments, hedge ratios, horizons, counterparty limits and governance. The difficult part is not proving that FX changes cash flow; it is deciding how much uncertainty the firm should retain.

What this concept covers

• Contractual receivables, payables, forecast transactions and committed exposures.
• Hedge ratios, layered hedging and policy bands.
• Forward, option and natural-hedge choices.
• Over-hedging, under-hedging and forecast-volume risk.
• Treasury governance, limits and documentation.

Learning outcomes

By the end of this concept, students should be able to:

• Measure transaction exposure from a cash-flow schedule.
• Compare hedge ratios under different certainty and risk-tolerance assumptions.
• Evaluate the cost and residual risk of a hedge programme.
• Write a defensible short hedging-policy recommendation.

Supports Course Outcomes 6 and 7.

How to teach it

• Give teams the same exposure but different board risk appetites.
• Force a percentage hedge recommendation rather than “hedge or do not hedge.”
• Separate the treasury objective from the exchange-rate forecast.
• Debrief the cost of protection versus the cost of missing the budget rate.

Case-style example

Marlowe Components will receive USD 18 million in nine months from a US customer and has USD 5 million of matched component purchases. Budget rate is GBP/USD 1.29; the forward is 1.27. Policy permits 50% to 90% of net committed exposure to be hedged. Students calculate net exposure, compare 50%, 70% and 90% forward hedges across three spot scenarios, then defend a ratio to the CFO. They discover that hedge policy is a risk-budget decision, not a forecast contest.

Where students struggle

Students use gross exposure when natural offsets exist, or think a hedge that loses money was necessarily a bad decision. Evaluate the hedge against the protected budget objective.

Reading and a quick check

Pair a treasury-risk chapter with a verified case such as AIFS or SaskPower. Quick check: ask whether the firm is protecting cash flow, earnings or economic value.

Where the applied work fits

Use a short calculation, case memo, model critique or board-style discussion here. The aim is to make the concept produce evidence without forcing an unrelated simulation into the session.

Where it leads

Known transactions are only one part of currency risk. The course next separates accounting translation from longer-run operating exposure.

Central question: How can exchange rates change reported accounts and competitive economics even when no single foreign-currency invoice exists?

Students often stop at transaction exposure because it is easiest to calculate. International Finance becomes more strategic when they see that currency moves can alter reported earnings, balance-sheet ratios, relative prices, sourcing economics and the competitiveness of future cash flows. Translation exposure is accounting based; operating exposure concerns the present value of future operating cash flows.

What this concept covers

• Translation of foreign subsidiaries and reporting-currency effects.
• Functional currency and high-level translation-method logic.
• Operating or economic exposure through revenues, costs and competitor positions.
• Pricing, sourcing, production footprint and financing as long-run responses.
• Limits of financial hedging for persistent competitive exposure.

Learning outcomes

By the end of this concept, students should be able to:

• Distinguish transaction, translation and operating exposure.
• Identify which financial statements or operating drivers change under a currency scenario.
• Recommend operational as well as financial responses.
• Explain why a perfect accounting hedge may not create an economic hedge.

Supports Course Outcomes 7 and 8.

How to teach it

• Use a subsidiary income statement and balance sheet under two exchange rates.
• Then move to a competitor with a different cost currency.
• Ask teams to separate what can be hedged with derivatives from what requires operational change.
• Use a board memo rather than a calculation-only worksheet.

Case-style example

Aster Motors sells in the UK but sources 55% of components in euros; its main rival sources locally in sterling. GBP/EUR falls from 1.17 to 1.04. Students translate Aster’s EUR 40 million subsidiary equity, estimate the gross-margin effect on GBP 120 million of annual sales, and compare a one-year forward hedge with a supplier renegotiation. One group prioritises earnings stability; another prioritises long-run competitiveness. Students discover why translation and operating exposure require different responses.

Where students struggle

Students label any currency effect as “transaction risk.” Insist that they name the cash flow, accounting item or competitive mechanism before proposing a hedge.

Reading and a quick check

Use the translation and operating-exposure chapters from the core text, with a short case on a multinational manufacturer.

Where the applied work fits

Use a short calculation, case memo, model critique or board-style discussion here. The aim is to make the concept produce evidence without forcing an unrelated simulation into the session.

Where it leads

Once students can see firm-level currency exposure, they can study the investor side: global diversification and currency risk in portfolios.

Central question: When does investing globally improve the portfolio, and how should currency exposure change the risk-return judgement?

International diversification connects portfolio theory to exchange rates, capital flows and home bias. Students should not be taught that adding foreign assets automatically diversifies. Correlations, common global shocks, currency returns, hedging costs and investor mandates matter. This is the natural point for the Portfolio Management Simulation because students already understand risk, return and currency channels.

What this concept covers

• International diversification, correlations and the limits of home-market concentration.
• CAPM, mean-variance optimisation and risk-adjusted performance in a global setting.
• Currency contribution to foreign-asset returns.
• Hedged versus unhedged international portfolios.
• Home bias, mandate constraints and global capital allocation.

Learning outcomes

By the end of this concept, students should be able to:

• Compute the domestic-currency return on a foreign asset.
• Evaluate the diversification contribution of international holdings.
• Compare hedged and unhedged portfolio logic.
• Defend a portfolio allocation against a stated client mandate rather than a universal risk target.

Supports Course Outcomes 8 and 9.

How to teach it

• Start with domestic-currency and local-currency returns for the same stock.
• Give teams different investor mandates so the same asset can be appropriate for one and not another.
• Require a correlation and concentration diagnosis before optimisation.
• Use the simulation as an applied portfolio-construction and rebalancing exercise, then add a currency overlay in the debrief.

Case-style example

Orion Pension Fund has GBP 200 million to allocate across UK, US and Japanese equities. Expected local returns are 6%, 8% and 7%; volatilities are 14%, 18% and 20%. The investment team expects USD to weaken 3% against GBP and JPY to strengthen 4%, while a full currency hedge costs 0.6% and 0.9% respectively. Students compare local and GBP returns, propose weights and choose hedge ratios. They discover that diversification and currency views can push the same allocation in opposite directions.

Where students struggle

Students optimise using local-currency asset returns and then forget that the investor consumes in a different currency. Make them reconcile asset and FX returns explicitly.

Reading and a quick check

Use recent work on international currencies, capital allocation and global hedging. Quick check: explain whether currency hedging changes expected return, risk or both in the proposed portfolio.

Where a simulation fits

The Portfolio Management Simulation fits after students know CAPM, diversification, covariance and risk-adjusted performance. Teams manage portfolios across 25 global companies as Hedge Fund or Pension Fund managers, then the lecturer can add a currency-risk overlay to the debrief without claiming the simulation itself models FX.

Where it leads

The investor view leads naturally to country and sovereign risk, where macro conditions affect required returns and market access.

Central question: How should a financial decision incorporate country risk without turning a checklist into a country stereotype?

Country risk needs disciplined decomposition. Political, macroeconomic, legal, institutional, transfer and convertibility risks can affect cash flows, discount rates, market access and the feasibility of moving money across borders. Students should separate observable country conditions from the specific transmission mechanism into the investment or financing decision.

What this concept covers

• Sovereign risk, political risk, transfer and convertibility risk.
• Country spreads, ratings and market indicators as evidence, not automatic answers.
• Capital controls, policy uncertainty and legal or regulatory constraints.
• Country risk in project appraisal, financing and portfolio investment.
• Scenario analysis and mitigation through structure, diversification, insurance or local partnerships.

Learning outcomes

By the end of this concept, students should be able to:

• Identify the specific channel by which a country risk affects value.
• Use a structured external analysis without double-counting the same risk.
• Distinguish country risk from company-specific operating risk.
• Recommend mitigants and explain what residual risk remains.

Supports Course Outcomes 9 and 10.

How to teach it

• Give students the same country but different transactions: a local bond, an export contract and a greenfield project.
• Ask which PESTLE factors actually change the finance decision.
• Use weights and scenarios rather than an unranked list.
• Require one mitigation action for every major risk identified.

Case-style example

Aquila Renewables is considering a USD 75 million solar project in Lydora. Revenues are in local currency, debt service would be in dollars, the government guarantees tariffs for 12 years and the sovereign spread has risen from 240 to 410 basis points. Students identify political, economic and legal drivers, decide whether to adjust cash flows, discount rate, financing structure or all three, then compare a “proceed with protections” recommendation with “delay.” They discover why country risk must be tied to a valuation mechanism.

Where students struggle

Students often add a country premium to the discount rate while also reducing the same cash flows for the same risk. Make them identify double counting.

Reading and a quick check

Use current IMF external-sector material and a country-risk chapter. Quick check: ask which risk would stop cash from being earned, received or converted.

Where a simulation fits

The PESTLE Analysis Simulation fits as a structured country and macro-environment workshop. It asks Growth Strategy and Risk Management teams to score and weight political, economic, social, technological, legal and environmental factors for a market-entry decision, which is useful for risk materiality even though it is not an FX simulation.

Where it leads

Country conditions shape where and how firms raise capital. The course next moves into global debt and equity financing.

Central question: How should a multinational choose where, in what currency and through which instrument to raise capital?

International financing is more than comparing nominal coupons across currencies. Students need to connect currency of borrowing, asset cash flows, hedging costs, maturity, covenants, investor base, market access and the firm’s overall capital structure. Equity issuance adds valuation, disclosure, investor demand and allocation decisions.

What this concept covers

• Global cost and availability of capital.
• Debt capacity, currency of borrowing, maturity, covenants and refinancing risk.
• Local, offshore and syndicated debt markets.
• Cross-border equity issuance, IPO pricing and investor demand.
• Synthetic funding through swaps and the difference between apparent and hedged borrowing cost.

Learning outcomes

By the end of this concept, students should be able to:

• Compare borrowing alternatives on a hedged and risk-adjusted basis.
• Assess whether currency of debt creates a natural hedge or a mismatch.
• Evaluate a debt package as an integrated set of terms.
• Explain how investor demand and market conditions affect an equity issue.

Supports Course Outcomes 10 and 10.

How to teach it

• Give two currency borrowing offers and require students to include hedge cost before comparing them.
• Ask lender and borrower teams to justify different structures.
• Use an IPO workshop to connect valuation to demand and allocation.
• Debrief why the cheapest nominal coupon can create the highest economic risk.

Case-style example

Vela Software needs the equivalent of USD 120 million. A five-year USD facility costs SOFR + 260 basis points; a EUR loan costs EURIBOR + 170, but only 30% of Vela’s cash flow is in euros. A cross-currency swap would add 75 basis points to the EUR structure. Students compare indicative all-in costs, test a 15% euro depreciation and recommend currency, maturity and hedge structure. One team prefers cheaper hedged euro debt; another values the simpler dollar liability. Students discover that financing cost and currency risk must be assessed together.

Where students struggle

Students compare coupons without converting them to a common risk basis, or assume issuing in the lowest-rate currency is automatically optimal.

Reading and a quick check

Use the global-financing chapters from the core text and selected recent material on dollar funding and intermediary constraints.

Where a simulation fits

The Debt Financing Simulation fits the capital-structure and lender-protection part of this concept. The Initial Public Offering Simulation supports equity-market issuance, valuation, roadshow, book building, final pricing and share allocation. Neither simulation is inherently cross-border, so the international dimension should be added through the lecturer’s currency and market-access debrief.

Where it leads

Once the firm can fund itself globally, students can evaluate the foreign investments that capital is meant to finance.

Central question: How should a multinational value a foreign project when project cash flows, parent cash flows, taxes, exchange rates and country risk can differ?

Multinational capital budgeting is where the course becomes fully integrative. The technical methods remain NPV and scenario analysis, but the cash-flow definition is harder: local revenues, remittances, taxes, blocked funds, exchange-rate changes, financing and political risk can all change the amount ultimately available to the parent. Students should learn to state the valuation perspective before calculating.

What this concept covers

• Project versus parent perspective and incremental cash flows.
• Exchange-rate forecasts and conversion of foreign cash flows.
• Tax, remittance restrictions and financing side effects.
• Country risk, discount-rate choices and scenario analysis.
• Capital rationing across international projects.

Learning outcomes

By the end of this concept, students should be able to:

• Build a parent-currency NPV from foreign-currency project cash flows.
• Identify cash flows that belong to the project, subsidiary or parent.
• Avoid double counting country and currency risk.
• Defend an investment recommendation under capital constraints.

Supports Course Outcomes 10 and 10.

How to teach it

• Start with a domestic capital-budgeting problem and add one international complication at a time.
• Require students to label currency and entity for each cash flow.
• Use separate scenarios for exchange rate, operating performance and remittance restrictions.
• Finish with a portfolio allocation problem when capital is rationed.

Case-style example

Nexa Foods can invest GBP 30 million in a Polish plant that is expected to generate PLN 24 million per year for five years after local tax. The current rate is PLN 5.10/GBP, the base forecast weakens PLN by 2% annually, and 20% of annual cash may be retained locally for working capital. Students build parent-currency cash flows, calculate NPV at 10%, then test a flat-currency case and a one-year remittance block. They discover that valuation perspective and cash-flow availability matter as much as the headline project return.

Where students struggle

Students convert accounting profit instead of cash flow, mix parent and project discount rates, or adjust both cash flows and discount rate for the same country risk.

Reading and a quick check

Use the multinational capital-budgeting chapter and a current country-risk note. Quick check: ask whose cash flow is being valued and in which currency.

Where a simulation fits

The Capital Budgeting Simulation is the strongest supporting exercise here. Each student acts as a CFO, applies NPV, IRR, profitability index and payback, then allocates a fixed USD 10 million budget across eight projects. The case is not cross-border, so the lecturer should use it for capital-rationing discipline and add international cash-flow adjustments separately.

Where it leads

The final concept brings financing, cash, trade and risk controls together into the operating treasury of a multinational.

Central question: How does a multinational treasury coordinate currency, funding, liquidity and trade-finance decisions across subsidiaries?

The final concept should integrate rather than add another isolated technique. A multinational treasury manages cash pools, intercompany funding, working capital, bank relationships, trade instruments, liquidity buffers and risk limits across jurisdictions. Students should leave seeing International Finance as a system of connected decisions rather than a sequence of exchange-rate calculations.

What this concept covers

• Centralised versus decentralised treasury and cash pooling.
• Intercompany loans, netting, leading and lagging and trapped cash.
• Letters of credit, documentary collections, factoring and export finance.
• Liquidity buffers, short-term funding and counterparty concentration.
• Treasury policy, controls, ESG or sanctions considerations and board reporting.

Learning outcomes

By the end of this concept, students should be able to:

• Map cross-border cash and funding flows across a multinational group.
• Recommend a treasury structure that balances efficiency with local constraints.
• Compare trade-finance instruments based on payment and counterparty risk.
• Integrate FX, liquidity and financing risks in a board-level recommendation.

Supports Course Outcomes 10 and 10.

How to teach it

• Give students a three-subsidiary cash map and ask them to reduce external borrowing without creating new currency mismatches.
• Use a trade-finance choice between open account, letter of credit and prepayment.
• End with a treasury committee that must prioritise three risks with limited hedging capacity.
• Require a one-page policy dashboard with limits and escalation triggers.

Case-style example

Polaris Group has USD 12 million surplus cash in Singapore, EUR 9 million borrowing in Germany and BRL 45 million trapped by local remittance restrictions in Brazil. A supplier also requests a USD 6 million letter of credit. Students compare cash pooling, an intercompany EUR loan, an FX swap and keeping local liquidity, then identify legal and currency risks. One recommendation minimises external interest expense; another preserves liquidity buffers. Students discover that treasury optimisation is constrained by currency, regulation and resilience.

Where students struggle

Students optimise one account at a time and create a hidden group-level currency or liquidity mismatch. Keep the group cash map visible throughout.

Reading and a quick check

Use the trade-finance and treasury chapters from the core text plus a current policy or market note. Quick check: ask what new risk is created by each liquidity-saving action.

Where the applied work fits

Use a short calculation, case memo, model critique or board-style discussion here. The aim is to make the concept produce evidence without forcing an unrelated simulation into the session.

Where it leads

This closes the course. Students should now be able to move from the global financial environment through FX mechanics, hedging, investing and financing to an integrated multinational decision.

10-week course structure

A 10-week version should compress adjacent topics rather than remove the distinctive International Finance decisions. Combine balance of payments with regimes, combine parity with market mechanics, and combine translation with operating exposure. Keep hedging, international portfolios, country risk, global financing and multinational capital budgeting.

14-week course structure

A 14-week version creates space to separate market mechanics from parity, add more exchange-rate forecasting and give major simulations their own debrief. Use the extra sessions to increase judgement and reflection rather than simply add more formulas.

The Portfolio Management Simulation places students in teams as Hedge Fund or Pension Fund portfolio managers. Teams analyse historical data across 25 global companies, apply CAPM and mean-variance optimisation, construct an initial equity portfolio and rebalance through later quarters as new market information arrives. The core activity lasts roughly 3-6 hours and can be delivered in class, online or in hybrid form.

Why it fits here

By Session 8, students should already understand expected return, beta, covariance, diversification and home-currency return. The simulation then makes portfolio construction and rebalancing observable. The important limitation is pedagogical: the simulation does not model currency hedging directly, so the lecturer should add an FX overlay in the pre-brief or debrief rather than imply a feature that is not present.

What students do

• Work in teams of 3-5 and receive either a Hedge Fund or Pension Fund mandate.
• Use supplied historical data and an Excel model to estimate expected return, beta, covariance, volatility and portfolio weights.
• Select securities, choose allocations and decide whether to retain cash or use permitted leverage.
• Review performance and new company or market news in later quarters, then buy, sell or rebalance.
• Compare return and volatility, with Hedge Fund teams focusing on Alpha and Pension Fund teams focusing on Sharpe Ratio.
• Use the final portfolio history as evidence for a structured debrief on concentration, diversification, turnover and mandate fit.

Recommended course placement

• At the end of Session 8 after international diversification and currency-return decomposition.
• As one intensive 3-hour class, or split across multiple shorter sessions within the published 3-6 hour range.
• Before an individual portfolio note in which students add a currency-hedging recommendation to the simulated equity portfolio.

Knowledge students should have before the simulation

• CAPM and expected return.
• Diversification, covariance and volatility.
• Mean-variance optimisation and the Sharpe Ratio.
• The difference between local-currency and home-currency returns for an international investor.

Delivery format

Suggested debrief questions

• Which assumptions drove the initial portfolio?
• Did the team rebalance because the information changed expected return or because recent performance created pressure?
• How would the home-currency return change if the major foreign currencies moved by plus or minus 5%?
• Would you fully hedge, partially hedge or leave currency exposure open for this client mandate?
• Was the final return achieved with a risk level appropriate to the mandate?

The Debt Financing Simulation centres on the refinancing of Softie, a private equity-backed software company. Students work in lender or borrower teams and use company, financial and market evidence to prepare positions before negotiating one complete financing package. The public product page describes an approximately 3-hour role-based refinancing simulation, with Analysis and Structuring stages of about 90 minutes each plus an introductory briefing and untimed reflection.

Why it fits here

International Finance students need to see that the currency of borrowing is only one part of a financing decision. Debt amount, pricing, maturity, repayment, seniority, security and covenants interact. The simulation provides the integrated debt-negotiation process; the lecturer adds the international layer by asking how the package changes if the borrower’s operating cash flows and debt currency differ, or if a cross-currency hedge is required.

What students do

• Work in teams of 3-5 as lenders or borrowers, with one team from each side paired into a negotiation group.
• Review the Information Memorandum, company evidence, capital structure and industry comparables.
• Prepare role-specific positions on debt capacity and the complete financing package.
• Negotiate loan amount, interest rate, maturity, repayment, security, guarantees, seniority, covenants and other protections.
• Respond to alerts and new information during the structuring stage.
• Review the final term sheets and compare complete packages across negotiation groups during reflection.

Recommended course placement

• After Session 10, once students have compared currency of borrowing, hedging cost and global capital-market alternatives.
• As a 3-hour applied workshop or split into shorter sessions using the platform pause and resume controls.
• Before a short individual memo that converts the domestic refinancing outcome into an international funding recommendation.

Knowledge students should have before the simulation

• Basic debt versus equity financing.
• Debt capacity and leverage.
• Interest rate, maturity, amortisation and covenants.
• The distinction between nominal borrowing cost and hedged economic financing cost.

Delivery format

Suggested debrief questions

• Which term constrained the package most: amount, price, maturity, amortisation, security or covenants?
• How would your recommendation change if the debt were denominated in a currency different from the borrower’s main cash flows?
• Would a cross-currency swap make the apparently cheaper funding genuinely cheaper?
• Which concessions were economically linked, and which were negotiated as if they were independent?
• What additional evidence would an international treasury committee require before approving the package?

Grading with the Portfolio Management Simulation

Teams manage a global equity portfolio from either a Hedge Fund or Pension Fund mandate, using historical data, CAPM, optimisation, trades and rebalancing decisions.

• Portfolio construction and the logic behind security weights, concentration, diversification and cash.
• Use of expected return, beta, covariance, volatility and mean-variance analysis.
• Consistency between the final portfolio and the assigned client mandate.
• Quality of rebalancing decisions when new market information arrives.
• An individual currency-overlay memo explaining how home-currency risk would change the simulated portfolio.

Grading with the Debt Financing Simulation

Lender and borrower teams analyse Softie and negotiate one complete refinancing package covering debt amount, pricing, maturity, repayment, seniority, security, guarantees and covenants.

• Debt-capacity judgement relative to earnings, existing debt and comparables.
• Coherence of the complete financing package rather than one isolated term.
• Role-specific preparation, concessions and negotiation logic.
• Ability to explain how currency of debt and hedging would alter the international financing recommendation.
• Individual reflection on one accepted term and one rejected alternative.