A ________ is a three-party instrument that is an unconditional written order by one party that orders a second party to pay money to a third party.

Question 1 options:

               

A)           draft

               

B)            promissory note

               

C)            certificate of deposit

               

D)           lease

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Question 2 (2 points) Question 2 Unsaved

Notes cannot be named after the security that underlies the note.

Question 2 options:

               

A)           True

               

B)            False

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Question 3 (2 points) Question 3 Unsaved

A promise or an order becomes conditional if it refers to a different writing for a description of rights to collateral, prepayment, or acceleration.

Question 3 options:

               

A)           True

               

B)            False

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Question 4 (2 points) Question 4 Unsaved

Mike deposited $100,000 in a bank and procured a certificate of deposit on it, payable to himself, and for repayment in 5 years with a 5 percent interest rate. A year after that, Mike borrows $25,000 from Jill, and gives her a promissory note to repay it in one year. As collateral, Mike gave Jill the certificate of deposit and asked to put in a prepayment clause to which Jill agreed. They mutually agreed that Mike could repay in monthly payments, as mentioned it in the note.

 

 

What kind of promissory note has Jill and Mike decided on?

Question 4 options:

               

A)           a time note

               

B)            a bearer's note

               

C)            a mortgage note

               

D)           an installment note

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Question 5 (2 points) Question 5 Unsaved

Which of the following is true about a trade acceptance?

Question 5 options:

               

A)           The buyer is the payee.

               

B)            The seller is both the drawer and payee.

               

C)            The draft is countersigned by the drawee's bank.

               

D)           The draft is only as good as the drawer's creditworthiness.

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Question 6 (2 points) Question 6 Unsaved

A promissory note is a two-party transaction.

Question 6 options:

               

A)           True

               

B)            False

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Question 7 (2 points) Question 7 Unsaved

Which one of the following is a similarity between bearer paper and order paper?

Question 7 options:

               

A)           both require a specific payee to be named

               

B)            both require indorsements to be considered negotiable

               

C)            both require delivery to be considered negotiable

               

D)           both can be claimed by whoever presents the instrument for payment

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Question 8 (2 points) Question 8 Unsaved

An instrument that is refused payment when presented for payment is called a(n) ________.

Question 8 options:

               

A)           blank instrument

               

B)            restrictive instrument

               

C)            demand instrument

               

D)           dishonored instrument

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Question 9 (2 points) Question 9 Unsaved

Which order paper when indorsed becomes a bearer paper?

Question 9 options:

               

A)           unqualified indorsement

               

B)            black indorsement

               

C)            special indorsement

               

D)           special qualified indorsement

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Question 10 (2 points) Question 10 Unsaved

A qualified indorsement protects subsequent indorsers from liability.

Question 10 options:

               

A)           True

               

B)            False

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Question 11 (2 points) Question 11 Unsaved

A(n) ________ is a signature and other directions written by or on behalf of the holder somewhere on an instrument.

Question 11 options:

               

A)           recommendation

               

B)            assignment

               

C)            indorsement

               

D)           reference

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Question 12 (2 points) Question 12 Unsaved

An indorsement that purports to prohibit further negotiation of an instrument does not destroy the negotiability.

Question 12 options:

               

A)           True

               

B)            False

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Question 13 (2 points) Question 13 Unsaved

Liability on a negotiable instrument that is imposed on a party only when the party primarily liable on the instrument defaults and fails to pay the instrument when due is referred to as ________.

Question 13 options:

               

A)           secondary liability

               

B)            unqualified liability

               

C)            fringe liability

               

D)           warranty liability

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Question 14 (2 points) Question 14 Unsaved

A qualified indorser cannot disclaim transfer warranties.

Question 14 options:

               

A)           True

               

B)            False

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Question 15 (2 points) Question 15 Unsaved

Martha draws a check payable to the order of Stella. Stella indorses the check to Karen. But Leslie steals the check from Karen, forges Karen's indorsement, and cashes the check at a liquor store.

 

 

Who is liable to the check?

Question 15 options:

               

A)           the liquor store

               

B)            Martha

               

C)            Stella

               

D)           Leslie

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Question 16 (2 points) Question 16 Unsaved

Sylvester, acting as a representative agent for Jerry, signs a negotiable instrument with the signature-Sylvester, by Jerry, agent. What kind of liability does Sylvester have for this type of signature?

Question 16 options:

               

A)           He is not liable to the instrument.

               

B)            He liable to the payee.

               

C)            He is liable to Jerry.

               

D)           He is liable to the HDC of the instrument.

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Question 17 (2 points) Question 17 Unsaved

What is transfer of an instrument?

Question 17 options:

               

A)           the issuance of the instrument

               

B)            the presentment for payment of the instrument

               

C)            the passage of the instrument other than issuance and presentment

               

D)           the cancellation of the instrument

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Question 18 (2 points) Question 18 Unsaved

Which of the following is a characteristic of a presentment warranty on an instrument presented for payment?

Question 18 options:

               

A)           The transferor has no knowledge of any insolvency.

               

B)            The transferor has good title to the instrument.

               

C)            No defenses of any party are good against the transferor.

               

D)           The instrument has not been materially altered.

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Question 19 (2 points) Question 19 Unsaved

A checking account customer owes a duty to examine the monthly statements of account promptly and with reasonable care to determine whether any payment was not authorized because of alteration of a check or a forged signature.

Question 19 options:

               

A)           True

               

B)            False

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Question 20 (2 points) Question 20 Unsaved

According to the Electronic Funds Transfer Act and Regulation E adopted by the Federal Reserve Board, a bank can send unsolicited EFTS debit cards to a consumer only if the cards are not valid for use.

Question 20 options:

               

A)           True

               

B)            False

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Question 21 (2 points) Question 21 Unsaved

How is a cashier's check different from an ordinary check?

Question 21 options:

               

A)           Cashier's checks can be postdated, but ordinary checks cannot be postdated.

               

B)            Unlike ordinary checks, cashier's checks do not require the purchaser to hold a checking account at that bank.

               

C)            Unlike ordinary checks, cashier's checks are cancellable negotiable instruments upon issue.

               

D)           Cashier's checks are three-party checks, while ordinary checks involve only two parties.

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Question 22 (2 points) Question 22 Unsaved

The Federal Deposit Insurance Corporation was created under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Question 22 options:

               

A)           True

               

B)            False

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Question 23 (2 points) Question 23 Unsaved

The payee of a check can indorse it to a third person by replacing his name on the check with that of the third party.

Question 23 options:

               

A)           True

               

B)            False

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Question 24 (2 points) Question 24 Unsaved

A check is finally paid when the payer bank fails to dishonor the check within certain statutory time periods.

Question 24 options:

               

A)           True

               

B)            False

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Question 25 (2 points) Question 25 Unsaved

A check that has been outstanding for more than ________ is considered stale.

Question 25 options:

               

A)           six months

               

B)            one year

               

C)            three months

               

D)           nine months

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