Which of the assets are most likely to be good collateral? Which are likely to be bad collateral?

Suppose that you are a banker responsible for approving corporate loan. 9 firms are seeking secured loans. They offer the following assets as collateral:
a.Firm A, a refiner offers a storage tank full of jet fuel.
b.Firm B, a wine wholesaler offers 1,000 cases of Beaujolais Nouveau, located in a warehouse
c.Firm C, a stationer, offers an Accounts Receivable for Office Supplies sold to the city of Bordeaux
d.Firm D, a bookstore, offers its entire inventory of 15,000 used books
e.Firm E, wholesale grocer, offers 20,000 kilos of bananas
f.Firm F, a retail chain, offers its inventory of television sets
g.Firm G, a jeweler, offers 100 ounces of gold
h.Firm H, securities dealer, offers its portfolio of French Government Bonds
i.Firm I, a boat builder, offers a half completed luxury yacht. The yacht will take four months more to complete.

Which of the assets are most likely to be good collateral? Which are likely to be bad collateral? Please explain thoroughly.

H, the government bonds are the safest and most easily converted security.

Nearly all of the others are likely to have problems as collateral as the resale value may vary or the item may spoil or be depleted. Even the gold will fluctuate in price and be used as part of the jewelers manufacturing process.

Jeanette Bresitz – Head of Merchandising