Suppose you are the owner of a bank. As of 30 June 2018 your balance sheet is worth 100 million TL. Thus your assets sum up to 100 million TL and your liabilities plus equity too sums up to 100 million Your equity being 15 million TL, your liabilities are 85 million TL Your assets include a loan of 1 million dollars to XXX Corporation. This is your sole dollar denominated asset. Since on 30 June 2018, the dollar/TL exchange rate is 5TL/dollar this means this particular loan counts as 5 millionTL among your assets. You have borrowed 2 million dollars from London Bank. This is your sole dollar denominated liability. This particular debt enters as 10 million TL among your liabilities. Current banking regulation states a bank must have an Equity/Assets ratio of at least 15% 

Suppose due to an adverse shock the dollar/TL rate goes up from 5TL/dollar to 6TL per dollar.

a) All else being the same what is the new value of your assets?

b) All else being the same what is the new value of your liabilities?

c) All else being the same what is the new value of your equity?

d) Is this new situation problematic from a regulatory standpoint?

Answer rating: 100% (QA)

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