Deck 12: Financing

Question 1

In most common law countries, the person best able to prevent the forgery from happening is held liable for a forged instrument.

Answer 1

True

Question 2

Liability on the instrument for drawers, endorsers, and accommodation endorsers is primary.

Answer 2

False

Question 3

The laws in the United States allow warranty liability on negotiable instruments.

Answer 3

True

Question 4

The common law requires a note to contain the words "promissory note."

Question 5

Negotiation is the transfer of a bill or note in such a way that the recipient becomes a holder.

Question 6

In a trade acceptance, the drawer is ordered to pay a specified sum of money to the drawee.

Question 7

According to the fictitious payee rule, when the instrument is issued in the name of a fictitious payee, the person purporting to be that payee can make an effective endorsement.

Question 8

Notes that are secured by personal property are referred to as collateral notes.

Question 9

The ULB treats an endorsement prohibiting further endorsements as if it were a qualified endorsement.

Question 10

A bill of exchange is an unconditional written order.

Question 11

A bill of exchange that is payable at a definite future time is known as a sight bill.

Question 12

Parties with secondary liability to an instrument can only be sought after the instrument has been dishonored.

Question 13

In a promissory note, the party who promises to pay is called the payee.

Question 14

Any reference to some other agreements in a note would make it non-negotiable.

Question 15

To be negotiable, a bill or note must contain a promise by the drawer to make payment.

Question 16

The common law does not require a bill of exchange to be dated.

Question 17

An order bill is a bill or note that contains a special endorsement as its last endorsement.

Question 18

All restrictive endorsements prevent the further transfer or negotiation of a bill or note.

Question 19

Under the ULB, only banks can become holders of an endorsement for collection.

Question 20

In a conditional endorsement, no subsequent holder has the right to enforce the payment against a conditional endorser until the condition is met.

Question 21

A(n) ________ is a written, dated, and signed three-party instrument containing an unconditional order by a drawer that directs a drawee to pay a definite sum of money to a payee on demand or at a specified future date.

A) codicil
B) promissory note
C) deed
D) bill of exchange

Question 22

Tolling is a type of countertrade which involves the exchange of a monetary debt for another form of debt, such as an equity share or an obligation to deliver products, goods, or services.

Question 23

With regard to the form requirements for bills of exchange, the ULB is similar to the common law in that both require the instrument to ________.

A) state the place where the instrument was drawn
B) state the place where payable
C) contain the term "Bill of Exchange"
D) be in writing

Question 24

Which of the following is true of checks?

A) It is a two-party instrument.
B) It is always payable on demand.
C) It requires that the drawer is holding the drawee's money.
D) It necessitates that the seller has to be both the drawer and the payee.

Question 25

An advising bank assumes no liability for paying the letter of credit.

Question 26

When a bank is the maker promising to repay money it has received, plus interest, the promissory note is called a ________.

A) check
B) letter of credit
C) deed
D) certificate of deposit

Question 27

In a letter of credit transaction, an advising bank is entitled to reimbursement from the issuing bank if the documents it receives are in order.

Question 28

A(n) ________ is a person who has physical possession of a bill or note that was drawn, issued, or endorsed to him or her, or to his or her order, or to the bearer, or in blank

A) accommodation endorser
B) holder
C) assignor
D) acceptor

Question 29

Barter is an example of a countertrade.

Question 30

A drawee of a bill who, by signing the bill on its face, agrees to pay the bill when it is due is referred to as a(n) ________.

A) accommodation party
B) acceptor
C) holder in due course
D) holder

Question 31

Which of the following is true of a bill of exchange?

A) It is not considered a negotiable instrument.
B) It is also referred to as a draft.
C) It is a two-party instrument.
D) It contains a conditional order from the drawer that directs the drawee to pay a definite sum of money to a payee on demand or at a specified future date.

Question 32

With regard to the form requirements for bills of exchange, the ULB differs from the common law in that the ULB requires the instrument to be ________.

A) in writing
B) payable to order
C) payable to bearer
D) dated

Question 33

Which of the following terms refers to a bill of exchange on which the drawer and the payee are the same person?

A) trade acceptance
B) deed
C) codicil
D) certificate of deposit

Question 34

A bill involved in a draft transaction is considered a note ________.

A) if the drawer owes money to the drawee
B) if the drawee is drawer's buyer
C) if the drawee is a borrower of the drawer
D) if the drawer has kept money with the drawee for safeguarding

Question 35

A letter of credit is an instrument issued by a bank, or another person, at the request of an account party.

Question 36

A promissory note differs from a bill of exchange in that a promissory note ________.

A) cannot have a fixed date for payment
B) is not a written order to pay
C) is a two-party instrument
D) is always paid on demand

Question 37

In a draft transaction, if the drawee is a bank, then the draft is referred to as a ________.

A) promissory note
B) check
C) trade acceptance
D) certificate of deposit

Question 38

A ________ is an instrument issued by a warehouseman or carrier to a shipper that serves as a receipt for goods shipped, as evidence of the contract of carriage, and as a document of title for the goods.

A) bill of lading
B) deed
C) letter of credit
D) certificate of deposit

Question 39

The bill of exchange that is payable at the time it is presented or at a stated time after presentment is known as a(n) ________.

A) deed
B) allonge
C) sight bill
D) time bill

Question 40

In a draft transaction, if the drawee is a buyer of the drawer, then the draft is referred to as a ________.

A) promissory note
B) certificate of deposit
C) trade acceptance
D) check

Question 41

Both the common law and the ULB specify that ________.

A) the amount in the instrument can be paid in installments
B) the sum paid for the negotiable instrument must be money
C) the amount to be paid in an instrument is subject to variable interest rates
D) the instrument need not be signed to be considered negotiable

Question 42

In which of the following cases can the holder of an instrument seek recourse from the parties with secondary liability?

A) if the instrument has been physically damaged
B) if the instrument is not presented on time
C) if the instrument has been dishonored
D) if the instrument is found to be forged

Question 43

The ________ is the production of an instrument to a party liable to pay on it for that party's acceptance or payment.

A) accommodation of the instrument
B) presentment of the instrument
C) issuance of the instrument
D) endorsement of the instrument

Question 44

An endorsement in which the endorser does not guarantee that an instrument will be accepted and paid by the drawer or maker is referred to as a ________.

A) conditional endorsement
B) restrictive endorsement
C) qualified endorsement
D) special endorsement

Question 45

Which of the following definitions describes a drawee to a bill of exchange?

A) the issuer of a bill of exchange
B) a person who signs a bill of exchange or note to lend his or her credit to another party
C) the person ordered to pay a bill of exchange
D) a person who receives an endorsed bill of exchange or note from an endorser

Question 46

The Uniform Law on Bills of Exchange and Promissory Notes (ULB) differs from the Uniform Commercial Code in that the ULB ________.

A) does not allow for variable interest rates
B) allows payments to be made in installments
C) allows nonmonetary modes of payments
D) does not allow external references for payment amount

Question 47

The transfer of all or some of the rights under a contract is called a(n) ________.

A) assignment
B) allonge
C) endorsement
D) restrictive endorsement

Question 48

Which of the following written endorsements would be an example of an endorsement prohibiting further endorsement?

A) "Pay to Elaine, without recourse, [signed] John"
B) "For collection only, [signed] John"
C) "Pay to Elaine only, [signed] John"
D) "Pay to Elaine, agent for John [signed] John"

Question 49

A bearer paper can be converted to an order paper ________.

A) by the use of a bill of lading
B) by an endorsement to pay to the bearer
C) by an endorsement in blank
D) by the use of a special endorsement

Question 50

Which of the following definitions describes an endorsee of a note?

A) a person who endorses a bill or note as a guarantor
B) a person to whom a bill or note is to be paid
C) a person who receives an endorsed note from an endorser
D) a payee who has endorsed and delivered a note to an endorser

Question 51

Under common law, a person who acquires a bill or note for value, in good faith, and without notice that it is defective, overdue, or that any person has a claim to or defense against it is referred to as a(n) ________.

A) holder in due course
B) accommodation endorser
C) aval
D) acceptor

Question 52

Which of the following definitions describes an accommodation party of a bill or a note?

A) a person who receives an endorsed bill or note from an endorser
B) a person who endorses a bill or note as a guarantor of an endorsee
C) a person who signs a bill or note as a surety and comaker
D) a person who signs a bill or note to lend his or her credit to another party

Question 53

Common law differs from the Uniform Law on Bills of Exchange and Promissory Notes (ULB) in that the common law ________.

A) does not allow external references for payment amount
B) does not allow for variable interest rates
C) allows nonmonetary modes of payments
D) allows payments to be made in installments

Question 54

For which of the following types of endorsements is there a difference in endorsee status between the ULB and common law?

A) conditional endorsement
B) collection endorsement
C) agency endorsement
D) endorsement prohibiting further endorsement

Question 55

According to common law, which of the following is true of payment in a negotiable instrument?

A) It has to be paid in the currency of the country in which it was issued.
B) It cannot be made in installments.
C) It should be ascertainable from the instrument itself.
D) It can be paid in a nonmonetary mode of payment.

Question 56

Which of the following types of endorsements' payment depends on the occurrence of an event?

A) qualified endorsement
B) conditional endorsement
C) agency endorsement
D) special endorsement

Question 57

A bearer paper is different from an order paper in that a bearer paper ________.

A) cannot be negotiated
B) is negotiated by endorsement and delivery
C) is negotiated by delivery alone
D) is negotiated by endorsement alone

Question 58

Which of the following is a similarity between a qualified endorsement and an endorsement prohibiting further endorsement under the ULB?

A) In both the endorsements, the endorsee has no rights against the endorser.
B) In both the endorsements, the endorsee is considered a holder of the instrument.
C) In both the endorsements, the endorsee is considered a collecting agent for the endorser.
D) In both the endorsements, the endorsee has no rights against endorser until a stipulated condition is met.

Question 59

Which of the following definitions describes an aval of a bill or a note?

A) a person who has physical possession of a bill or note that is payable
B) a person who signs a bill or note as a surety and comaker
C) a person who endorses a bill or note as a guarantor of an endorsee
D) a person who signs a bill or note to lend his or her credit to another party

Question 60

The person who issues a bill of exchange is referred to as a ________.

A) payee
B) drawee
C) drawer
D) endorser

Question 61

What features should be present in a bill so that it meets promissory requirements?

Question 62

What are the rights and responsibilities of the account party in a letter of credit transaction?

Question 63

Describe the unconditionality feature of a bill or note.

Question 64

Describe the two major rules that limit a maker's excuse not to pay for forged instruments.

Question 65

Which of the following financial institutions of the World Bank provides funds to private companies?

A) the International Development Association
B) the International Bank for Reconstruction and Development
C) the International Finance Corporation
D) the International Centre for Settlement of Investment Disputes

Question 66

Which of the following would be an example of a countertrade?

A) a country exchanging its agricultural exports for oil from another country
B) a country selling its electronic products through a retail chain in another country
C) a country pledging some of its gold deposits as security for obtaining a loan from a financial institution
D) a country buying food reserves from another country

Question 67

What are the requirements placed on the form of a bill of exchange under the ULB?

Question 68

Explain the role of the advising bank in a letter of credit transaction.

Question 69

What is a bearer paper?

Question 70

What is an endorsement? What are the different types of endorsements?

Question 71

A ________ is an instrument issued by a bank or another person at the request of an account party that obliges the issuer to pay to a beneficiary a sum of money within a certain period of time upon the beneficiary's presentation of documents specified by the account party.

A) bill of lading
B) cashier's check
C) certificate of deposit
D) letter of credit

Question 72

________ is a type of countertrade in which a foreign supplier employs a processor to process raw materials that the processor cannot afford to purchase. The supplier then sells the processed goods to a third party to pay for the processing.

A) Buyback
B) Offset
C) Swap
D) Tolling

Question 73

In a ________ letter of credit, a credit is obtained by a seller naming the buyer as the beneficiary.

A) standby
B) red clause
C) revolving
D) transferable

Question 74

Describe the ways in which a bill or note can be paid.

Question 75

What are the consequences of not obtaining a letter of credit?