You are a business development officer of ABC bank. An existing client of yours told you about Mr Mark Angelo who is presently banking with MMM bank. You were told that Mr Angelo is a very rich and influential client who could be approached to move his business to your bank should you be able to offer him favourable rates. During your initial contact with Mr Angelo he indicated that he is not looking for another banker but that you should provide him with a proposal which he can consider.

MARK ANGELO

STATEMENT OF FINANCIAL POSITION AS AT 1 SEPTEMBER 20XX

ASSETS

Residential property - Mill Point Rd, South Perth

$ 15 000 000

Holiday home - Dunsborough

$ 5 160 000

Vineyard farm - Margaret River

$ 7 500 000

Investments:

Mark Equipment Pty Ltd - 50% shareholding

$ 1 527 600

Mark Equipment Pty Ltd - loan account

$ 5 325800

Fixed deposit

$ 750 000

Vehicles:

20XX Range Rover

$ 80 000

20XX Mercedes 600 SL

$ 190 000

20XX Porsche

$ 190 000

Household goods, Persian carpets and work of art

$ 1 000 000

$ 36 723 400

LIABILITIES

Bond on Mill Point Rd, South Perth property

$ 11 500 000

Bond on Dunsborough property

$ 2 500 000

Bond on farm

$ 4 500 000

Instalment sale agreements on vehicles

$ 1 000 000

Overdraft

$ 50 000

$ 19 550 000

Net asset value

$ 17 173 400

You as a banker identified three types of finance that can be taken over by your bank if he can be convinced to change his bank:

-Mortgage bonds over his fixed properties

-Finance (instalment sale agreements) over his vehicles

-Overdraft facility.

You also identified the residential properties and vineyard farm, the vehicles and the fixed deposit as the most suitable types of collateral. Answer the following questions for each of the three prominent types of collateral identified:

i.Can the bank easily obtain effective control or custody over the asset?

ii.Can the bank realise the asset quickly and with little expense?

iii.What is the possibility that the collateral can become worthless?

Complete the table to answer this question. Substantiate your answers with good reasons

Properties Vehicles Fixed Deposits

Can the bank easily obtain effective control or custody over the asset?

Can the bank realise the asset quickly and with little expense?

What is the possibility that the collateral can become worthless?