An International Capital Budgeting Experiential Exercise

This article describes an experiential exercise that uses a brief simulation model intended to introduce undergraduate international finance students to the complexities in corporate investments in foreign countries. Use of the model requires one or preferably two class periods. Student learning goals include: (a) understanding how different patterns of deviations from purchasing power parity can alter an international capital investment's profitability in dollars, (b) evaluating the tradeoffs of different financing options under violations of interest rate parity, (c) promoting discussion of ethical considerations in international investments by asking the student to decide whether to engage in local infrastructure investments and facilitation payments, and (d) gain experience in foreign investing under uncertain conditions.