Deck 25: Business and Banking

Question 1

Why should a commercial customer be cautious with regard to its bank-customer agreement?

A) Banks create agreements to limit their duties and liabilities.
B) Banks can transfer funds to cover negative balances.
C) Bargaining for greater flexibility can create an advantage.
D) Bargaining can limit a bank's ability to apply service charges.

Answer 1

A

Question 2

Which of the following describes one of the purposes of the federal Bank Act?

A) to regulate the relationship between banks and their customers
B) to ensure the stability and liquidity of banks
C) to provide specialized contract rules for the banking sector
D) to limit the liability of banks

Answer 2

B

Question 3

Which of the following is subject to the law of negotiable instruments?

A) credit cards
B) money laundering
C) cheques
D) electronic transfers

Answer 3

C

Question 4

What is the main source of law regulating the rights and obligations of the parties in the bank and client relationship?

A) regulatory law
B) contract law
C) federal statutes
D) provincial statutes

Question 5

Which of the following is the most commonly used form of negotiable instrument?

A) promissory note
B) cheque
C) debit card
D) credit card

Question 6

To which of the following is the bank's duty to maintain the secrecy of customer information subject?

A) fraud and forgery legislation
B) money laundering legislation
C) federal privacy legislation
D) provincial privacy legislation

Question 7

What is the name given to a document that consists of a written order by one person to a third person to pay money to another person?

A) promissory note
B) direction to pay
C) bill of exchange
D) promissory order

Question 8

What essential technical requirement must be present in order for an instrument to become negotiable without investigation as to its validity through reference to circumstances or other documents?

A) a payee's endorsement
B) an authorized signature
C) a drawer's endorsement
D) an unconditional obligation

Question 9

Tess deposited the $75 000 she received from the sale of her business into her daily interest savings account.What is the legal nature of the relationship created between Tess and her banking institution?

A) Tess is the debtor,and the bank is the creditor.
B) The bank must report the transaction to FINTRAC.
C) The bank must verify the viable commercial source of the funds.
D) Tess is the creditor,and the bank is the debtor.

Question 10

Which of the following formerly applied to banks,trust companies,stockbrokerages,and insurance companies?

A) participation by banks and trust companies in the insurance sector
B) liberal ownership rules for national banking institutions
C) prohibition from conducting business beyond a sector
D) ability of subsidiary companies to sell insurance on websites

Question 11

Why is there so much legal uncertainty surrounding electronic banking?

A) because of the inapplicability of existing legislation to the paperless environment
B) because banking agreements are often ambiguous and poorly drafted
C) because the federal Bank Act is silent with respect to customer account agreements
D) because electronic evidence is difficult to preserve

Question 12

Highland Bakery Inc.has forwarded a cheque to Prairie Flour Mills Ltd.to pay Prairie's invoice for the flour it recently delivered.Prairie will deposit the cheque into its account upon receipt.How will the actual cash payment represented by the cheque be credited to Prairie Flour Mills' account?

A) through the bank's bills of exchange clearance centre
B) through the instantaneous Internet transfer process
C) through the bank's centralized clearing process
D) through the FINTRAC centralized clearing process

Question 13

Which of the following remains a limitation on the ability of banks to participate in the insurance industry?

A) They are prohibited from underwriting most types of insurance.
B) They are prohibited from selling any insurance products but may sell such products to non-residents.
C) They are prohibited from selling homeowner's insurance.
D) They are prohibited from selling or promoting insurance products in their branches.

Question 14

Which of the following would be most strongly influenced by an honoured cheque?

A) centralized clearing process
B) inadequate funds in an account
C) evidence of discharge of a debt
D) unambiguous payment instructions

Question 15

Which of the following is most likely to influence the arrangements concerning the issue of cheques and instructions for payment by the customer?

A) banking practice
B) a bank-customer agreement
C) a banking agreement
D) an operation of account agreement

Question 16

What is a distinguishing feature of banking account agreement?

A) It is designed primarily to establish the bank's rights in the event of an overdraft.
B) It is designed primarily to protect the interests of the bank.
C) It is intended primarily to protect the interests of the customer.
D) It is intended to balance the interests of the bank and the customer.

Question 17

What is the name given to the person in possession of a negotiable instrument?

A) a payee
B) a holder
C) a drawer
D) a third party

Question 18

Graham was owed money by Hiram,and in order to repay Graham,Hiram endorsed a cheque that Greta had previously made out to Hiram as payment for some handiwork he provided to her.Graham has no knowledge of the circumstances or the arrangement between Hiram and Greta.What name describes Graham's status in relation to the cheque that is now in his possession?

A) holder
B) drawer
C) holder in due course
D) payee

Question 19

How would a written contract containing an unconditional order to pay a specific sum on demand to a specific bearer most likely be classified?

A) as a promissory note
B) as a cheque
C) as a negotiable instrument
D) as a bill of exchange

Question 20

Which of the following would strongly suggest to a court that a bank has entered into a fiduciary relationship with its customer?

A) the non-traditional provision of financial advice to its customer
B) FCAC regulations' onerous fiduciary duties on banks
C) CFSON regulations' onerous fiduciary duties on banks
D) an implied common law expectation of competent financial advice

Question 21

Which of the following distinguishes a cheque from an Internet transaction?

A) Electronic transfers are instantaneous.
B) A cheque leaves a paper trail.
C) A cheque increases efficiency.
D) Verification is absent.

Question 22

Kellie went to her bank to obtain a certified cheque for $35 000 cash needed to close her house purchase.Kellie endorsed a $20 000 cheque that her mother gave her and requested that the remaining $15 000 be withdrawn from her savings account.Kellie requested that the certified cheque be made payable to "Sheps & Shaps LLP in trust." What types of endorsements were made?

A) restrictive endorsement; certified endorsement
B) endorsement in blank; special endorsement
C) certified endorsement; special endorsement
D) endorsement in blank; restrictive endorsement

Question 23

Which of the following is a valid criticism of electronic transactions?

A) Safeguarding transfer authority is a major challenge for e-commerce.
B) Authorization codes are necessary in electronic messages.
C) There is a tradeoff between increased efficiency and the absence of rules.
D) Safeguarding transfer authority is a major challenge for customers.

Question 24

Which of the following is synonymous,in legal terms,with the concept that liability for payment of a negotiable instrument is independent of the original debtor-creditor relationship?

A) A negotiable instrument has a life of its own.
B) Each cheque is valuable evidence of contractual obligations.
C) There is always good reason for liability to be borne by the other party.
D) It is convenient and dependable for commerce.

Question 25

Which of the following describes the least restrictive form of endorsement by a holder of a negotiable instrument?

A) without restriction endorsement
B) endorsement in blank
C) special endorsement
D) open endorsement

Question 26

How has the Criminal Code been modified to help to combat the increase of electronic identity theft?

A) It is now illegal to possess or traffic in government-issued identity documents.
B) Internet providers must now block and report e-mail phishing.
C) The disclosure of information to verify accounts is mandatory.
D) It defined electronic storage as data subject to system crashes or hackers.

Question 27

Marina is transferring a cheque to Scott by endorsing his name and her signature to the instrument.What is the legal name for this type of endorsement?

A) special endorsement
B) direct endorsement
C) blank endorsement
D) restrictive endorsement

Question 28

What form of electronic transaction involves a contract between the issuer and the user and a contract between the issuer and the merchant?

A) PayPal transaction
B) credit card transaction
C) money card transaction
D) smart card transaction

Question 29

Kellie's date of possession for the home she recently purchased is October 1.Her lawyer instructed her to provide the cash to close by way of a certified cheque in the amount of $35 000,payable to "Sheps & Shaps LLP in trust," by September 29.Why did Kellie's lawyer require the payment of these funds in this manner?

A) It prevents the drawee from requesting a stop payment on the cheque.
B) A cheque is a self-contained obligation,independent of any outside circumstances.
C) The major risk involved with cheques relates to the financial health of the drawee.
D) Risk is eliminated,as the payment of funds from bank reserves is guaranteed.

Question 30

In circumstances where a bank has been left with liability for a forged cheque,why should every party accepting that cheque have verified the authenticity of the endorsements on it?

A) The bank will deduct the value of the worthless cheque from any endorser's account.
B) A verification agreement will entitle the bank to recover assets of endorsers.
C) Without a special endorsement,collection may be a problem.
D) All prior endorsers risk the bank's recovery efforts.

Question 31

Which of the following would most likely strongly support a retailer qualifying for a guarantee of payment on credit card sales?

A) negotiability requirements
B) the irrevocability of the transaction
C) the secure status of the Internet provider
D) the verification of signatures

Question 32

Which of the following international rules deals with,among other things,the obligations of the parties,consequences for technical problems,and damages?

A) Electronic Funds Transfer and Electronic Banking Code
B) FINTRAC Financial Transactions and Reports Analysis Code
C) UNCITRAL Model Law on International Credit Transfers
D) ITRMC Identity Theft and Related Misconduct Code

Question 33

Which of the following may provide an individual without a bank account with the means for conducting online banking?

A) PayPal
B) smart card
C) cellphone
D) credit card

Question 34

Which of the following resulted from the reclassification of non-commercial promissory notes,enacted to ensure payment is subject to claims arising from the original contract of sale?

A) bills of exchange
B) holder in due course
C) consumer notes
D) letters of intent

Question 35

Emily gave Pierre a cheque for $5000 as payment for the car he sold her.Pierre owed Henry $5000,and he provided Emily's cheque to Henry to satisfy the debt.Henry couldn't make it to the bank,so he gave it Nigel to deposit for him.How did Henry's bank respond to Nigel's request to deposit the cheque?

A) The Bills of Exchange Act required the bank to hold the cheque for 10 days.
B) Provided all endorsements were in order,the bank accepted the cheque for deposit.
C) The bank refused the cheque because acceptance effectively extended credit.
D) The bank was required by FINTRAC to verify the validity of the transaction.

Question 36

What is the distinction between a "holder" and a "holder in due course"?

A) A holder is usually in a stronger position than a holder in due course.
B) A holder in due course has no notice of defects between the drawer and payee.
C) Unlike a holder in due course,a holder cannot be a payee.
D) A holder has absolute rights to collect as against the drawer.

Question 37

Which position offers the most security: being a holder in due course of a cheque or an assignee under an assignment of a debt,and why?

A) the holder in due course because he or she are aware in advance of any issues between the drawer of the cheque and the payee
B) a holder in due course because he or she can enforce the cheque regardless of any issues between the drawer and payee
C) an assignee because the assignee steps into the shoes of the assignor
D) an assignee because the assignee can enforce the assignment regardless of any issues between the assignor and debtor

Question 38

Why are banks placing daily and weekly monetary limits on transactions?

A) to shift risk allocation for the finalization of payments
B) to shift risk allocation for authentication
C) to combat the uncertainty surrounding electronic banking
D) to control losses in the event of fraud

Question 39

What party is subject to claims arising from an original contract of sale?

A) an assignee of non-commercial debt
B) a holder in due course
C) a holder of a consumer note
D) a holder of a negotiable instrument

Question 40

Which of the following would strongly support a refusal to honour payment to a holder in due course?

A) performance of contractual obligations
B) substandard goods
C) quantity of purchased goods
D) document alteration

Question 41

A stop payment means that a bank's customer cancels its instructions to pay a particular cheque and orders the bank to refuse payment when that cheque is presented.

Question 42

Individuals who conduct contractual business with banks need to appreciate the importance of the contract and become familiar with their basic rights and obligations,and they should understand that not only is the contract written largely to protect the bank but also their bargaining power is very limited.

Question 43

A written order to a person directing that a specific amount be paid to another individual is commonly described as a negotiable instrument.

Question 44

When a commercial retailer accepts a cheque as payment from one of its customers,the retailer becomes the payee and the customer is the drawer.

Question 45

A negotiable instrument is markedly different from an ordinary assignment of contractual rights,where there can be any number of defences against paying.

Question 46

The common law duties of banks include the duty to maintain the secrecy of the client's affairs.

Question 47

A cheque endorsed in blank may be cashed by whoever possesses it because,with this type of endorsement,the bank will consider that the signature is complete.

Question 48

Special endorsements stop the circulation of cheques and remove the risk of anyone else acquiring and cashing them.

Question 49

A retailer who has made a substantial sale to an individual who paid cash need not be concerned whether or not the monies it received are the proceeds of a crime.

Question 50

The holder of a consumer note is not accorded the special status of a holder in due course and is subject to claims arising from the original contract of sale.

Question 51

In situations where the bank fails to detect forged signatures and the customer does not immediately notice that the forged cheques have been cashed from its account,the courts will look to the bank-customer agreement to determine liability.If there is none,the common law rules apply.

Question 52

With respect to the party bearing the risk where payment of goods is made by cheque,the risk is borne largely by the payment system.

Question 53

The relationship between a bank and its individual customers is a primary concern of the Bank Act.

Question 54

An assignment is a written promise to pay a specified amount to another person.

Question 55

A written contract that contains an unconditional promise or order to pay a specified sum on demand or on a specific date to a specific individual or bearer is legally known as a bill of exchange.

Question 56

A promissory note is a written order to a bank to pay money to a specified person.

Question 57

The risk associated with a retailer accepting payment for goods in cash is that,while payment is immediate,the money may be counterfeit.

Question 58

The contract that specifies the rights and obligations of a bank and a customer is known as the operation of account agreement.

Question 59

A cheque is the most common example of a negotiable instrument.

Question 60

The banks duty to honour cheques and repay deposits is an express obligation imposed by the federal Bank Act.

Question 61

List the electronic options offered by banks to their customers that were noted in the text.

Question 62

Describe the various models for electronic cashless transactions.

Question 63

What is the central purposes of the federal Bank Act?

Question 64

Describe the essence of the requirements that must be present for an instrument to become negotiable without the need to investigate its validity through reference to circumstances of the instrument's creation or to other documents.

Question 65

The acceptance of cheques for payment creates risk for the businesses that accepts them.The use of cheques for payment also creates risks for businesses paying for services or supplies.What are these risks?

Question 66

Discuss the various aspects of the evolution of credit cards.

Question 67

In the case of SNS Industrial Products Limited v.Bank of Montreal,2010 ONCA 500,the Ontario Court of Appeal the bank failed to detect a forged signature on cheques drawn on a client's account,with the result that $186 488 was fraudulently taken from its customer's account over a three-year period.Who was responsible for detecting the forgeries,the customer or the bank,and why?

Question 68

Explain the distinction between an assignment of contractual rights and a negotiable instrument.

Question 69

Discuss the purpose of the banking agreement.

Question 70

What are the implications of accepting a cheque for payment?