Deck 22: Creation of Negotiable Instruments

Question 1

A trade acceptance is a two-party transaction.

Answer 1

False

Question 2

A bill of exchange is a type of sight draft.

Answer 2

True

Question 3

Article 3 of the UCC governs the use of negotiable instruments.

Answer 3

True

Question 4

A check is a type of promissory note.

Question 5

The financial institution upon which the check is written is the payee of a check.

Question 6

Negotiable instruments help in creating a credit economy.

Question 7

In order to be considered valid,a negotiable instrument need not state a fixed amount of money.

Question 8

The primary benefit of a negotiable instrument is that it can be used as a substitute for money.

Question 9

Security posted by promissory note maker to the lender for repayment of money is known as collateral.

Question 10

Promissory notes are not paid on demand.

Question 11

In a draft transaction,the payee or the drawer is allowed to freely transfer drafts as a negotiable instrument to another party.

Question 12

A promissory note is a two-party transaction.

Question 13

If the payee of the instrument is not mentioned on the face of the instrument,it is considered nonnegotiable.

Question 14

In a certificate of deposit,the depositor is the payee.

Question 15

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

Question 16

Acceptances for drafts can be done orally.

Question 17

The issuance of a negotiable instrument is known as negotiation.

Question 18

A negotiable instrument should be in writing in order to be considered valid.

Question 19

A certificate of deposit is an order to pay.

Question 20

In a draft transaction,the payee is called the acceptor of the draft.

Question 21

Promises to pay and orders to pay must be unconditional in order to be negotiable.

Question 22

An order instrument is payable to anyone in physical possession of the instrument and presents it for payment when it is due.

Question 23

________ are a special form of contract that satisfies the requirements established by Revised Article 3 of the UCC.

A)Banknotes
B)Negotiable instruments
C)Letters of credit
D)Stocks

Question 24

________ of the UCC is a model code that establishes rules for the creation of,transfer of,enforcement of,and liability on negotiable instruments.

A)Article 5
B)Article 3
C)Article 2
D)Article 2A

Question 25

Which one of the following would be a three-party transaction?

A)a promissory note
B)a certificate of deposit
C)an ordinary lease
D)a draft

Question 26

The UCC signature requirement indicates that a negotiable instrument must be signed by the drawer if it is a certificate of deposit.

Question 27

Instruments that are payable on demand are called order instruments.

Question 28

An acceleration clause permits the maker to pay the amount due prior to the due date of the instrument.

Question 29

Trade names or assumed names cannot be used for signing negotiable instruments.

Question 30

To be negotiable,a draft or check must contain the drawer's unconditional order to pay a payee.

Question 31

Rubber-stamps are not recognized as signing instruments under the UCC.

Question 32

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 33

An acknowledgement of debt is sufficient to consider a promissory note as a negotiable instrument.

Question 34

A prepayment clause allows the payee or holder to accelerate payment of the principal amount of an instrument.

Question 35

An extension clause allows the date of maturity of an instrument to be extended to sometime in the future.

Question 36

To qualify as a negotiable instrument,a promise cannot state any other undertaking by the person promising other than the payment of money.

Question 37

A conditional promise is not a negotiable instrument.

Question 38

A maker or drawer can appoint an agent to sign a negotiable instrument on his or her behalf.

Question 39

Instruments that are payable upon an uncertain act or event are not negotiable.

Question 40

A negotiable instrument can be honored with payment of non-monetary items.

Question 41

A ________ is a distinct form of draft drawn on a financial institution and payable on demand.

A)promissory note
B)check
C)deed
D)letter of credit

Question 42

Which of the following statements is true for a negotiable instrument?

A)It should be signed by the payee.
B)It need not state a fixed amount of money.
C)It should not require any undertaking other than the payment of money.
D)It can be either written or oral.

Question 43

A sight draft that arises when credit is extended by a seller to a buyer with the sale of goods is known as a ________.

A)check
B)time draft
C)trade acceptance
D)demand draft

Question 44

Who is the drawee of a check?

A)The drawer of the check is also its drawee.
B)The financial institute where the drawer has an account.
C)The party to whom a check is written.
D)The financee to whom the check is drawn.

Question 45

Which of the following is a fundamental requirement for a negotiable instrument?

A)that it must be supplemented with interest upon payment
B)that it must be secured with collateral
C)that it must contain a drawer,drawee,and a payee
D)that it must be in a permanent state

Question 46

A ________ is a two-party negotiable instrument that is an unconditional written pledge by one party to pay money to another party.

A)bill of exchange
B)check
C)certificate of deposit
D)promissory note

Question 47

Which of the following is true about a draft?

A)It is always a two-party transaction.
B)It is an unconditional written promise to pay.
C)It is a note created upon deposition of money.
D)It is a pay to order transaction.

Question 48

The UCC signature requirement indicates that a negotiable instrument must be signed by ________.

A)a witness
B)the maker or drawer
C)the drawee
D)the financee

Question 49

Which of the following is true about a promissory note?

A)It is a three-party transaction.
B)It is not an order to pay.
C)The party who makes the promise is the lender.
D)The payee cannot transfer a note to a third party.

Question 50

Which of the following is considered as a distinction of a check?

A)It always draws its money from a financial institute.
B)It is created when credit is extended to a buyer by a seller.
C)It is a two-party instrument.
D)It is an unconditional written promise to pay.

Question 51

What is the similarity between a demand draft and a trade acceptance?

A)both are examples of sight drafts
B)both require credit to be extended to the buyer
C)both have the drawer to be the payee as well
D)both are considered two-party transactions

Question 52

A ________ is a type of draft that is always paid at a future date.

A)sight draft
B)bill of exchange
C)time draft
D)demand draft

Question 53

Who is the drawee in a draft transaction?

A)The party that demands the draft.
B)The party who pays the money stated in a draft.
C)The party who writes an order for a draft.
D)The party who receives the money from a draft.

Question 54

A two-party negotiable instrument that is a special form of note created when a person deposits money at a financial institution in exchange for the institution's promise to pay back the amount of the deposit plus an agreed-upon rate of interest upon the expiration of a set time period agreed upon by the parties is known as a ________.

A)collateral note
B)check
C)certificate of deposit
D)bill of exchange

Question 55

The ________ requirement of negotiable instruments says that negotiable instruments must be able to be easily transported between areas.

A)portability
B)permanence
C)signature
D)transparency

Question 56

Who is the acceptor of a draft in a draft transaction?

A)the drawer
B)the drawee
C)the payee
D)the financee

Question 57

Which of the following is true about a certificate of deposit?

A)It is a promise to pay.
B)It is used to extend credit to a buyer.
C)It is a three-party instrument.
D)It can be made to pay on demand.

Question 58

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.

A)draft
B)promissory note
C)certificate of deposit
D)lease

Question 59

If a promissory note is secured by a piece of real estate,then the note is called a(n)________.

A)collateral note
B)mortgage note
C)demand note
D)installment note

Question 60

Which of the following is true about a trade acceptance?

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.

Question 61

Roger,a certified lawyer,borrowed money from Jax to start a business.He gave a promissory note to Jax promising to pay the money back anytime within the next five years.But in order to accept the note Jax demanded a security deposit.Roger gave the gold that he owned as security.Roger in turn demanded that a specific clause be added to the promissory note to allow faster repayment of the lawn in case he inherited money within the next five years.But even after five years,Roger was unable to complete payment.He made a new promissory note promising to finish payment within the next year,and promised to provide free legal service to Jax for the next two years.
What kind of promissory note did Jax secure from Roger for the original amount?

A)a collateral note
B)a mortgage note
C)an installment note
D)a time note

Question 62

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?

A)a time note
B)a bearer's note
C)a mortgage note
D)an installment note

Question 63

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.
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. If Mike defaults on the payment even after one year,which of the following is true of the foreclosure options Jill has with the certificate of deposit Mike gave her?

A)The bank has to pay her only after the five-year period mentioned in the CD.
B)The bank does not have to pay her for the CD.
C)The bank has to pay her the difference of $75,000.
D)The bank has to pay her $25,000 with one year interest at 5 percent on demand.

Question 64

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.
In which of the following ways will the prepayment clause help Jill?

A)It helps Jill to shorten the repayment period when she wishes.
B)It helps Jill acquire the whole amount in one payment incase Mike defaults.
C)It allows Mike to repay earlier than the stipulated time.
D)It obligates Mike to pay interest on the money he defaults.

Question 65

A(n)________ is a clause in an instrument that permits the maker to pay the amount due prior to the date of the instrument.

A)prepayment clause
B)acceleration clause
C)extension clause
D)forestallment clause

Question 66

What are nonnegotiable contracts?

Question 67

Once an appointed authorized representative signs a negotiable instrument,while unambiguously disclosing his or her agency status,and the identity of the maker or drawer,then,________.

A)the authorized agent becomes personally liable to pay for the negotiable instrument
B)the signature binds the maker or drawer of the negotiable instrument to the instrument
C)the agent cannot sign another negotiable instrument until this instrument's transaction is complete
D)the agent is obligated with secondary liability to the instrument

Question 68

Which of the following must a promissory note contain to make it negotiable?

A)an acknowledgement of debt
B)an implied promise to pay
C)an unconditional affirmative to pay
D)a promise to negotiate

Question 69

A(n)________ is type of instrument that is payable to anyone in physical possession of the instrument and presents it for payment when it is due.

A)certificate of deposit
B)order instrument
C)bearer instrument
D)check

Question 70

Roger,a certified lawyer,borrowed money from Jax to start a business.He gave a promissory note to Jax promising to pay the money back anytime within the next five years.But in order to accept the note Jax demanded a security deposit.Roger gave the gold that he owned as security.Roger in turn demanded that a specific clause be added to the promissory note to allow faster repayment of the lawn in case he inherited money within the next five years.But even after five years,Roger was unable to complete payment.He made a new promissory note promising to finish payment within the next year,and promised to provide free legal service to Jax for the next two years.
Which of the following is true for the validity of the new promissory note made by Roger?

A)It must contain interest on the old principal to become a valid instrument.
B)It must contain a specific date or time to be considered valid.
C)It is a nonnegotiable instrument.
D)It is a negotiable instrument if Jax accepts it.

Question 71

What is a trade acceptance?

Question 72

Which of the following is true of a bearer paper?

A)It will mention a specific person as payee.
B)It will not specify a payee.
C)It will contain the term "payable to the order of."
D)It will contain an additional undertaking besides the payment of money.

Question 73

A(n)________ is a clause in an instrument that allows the payee or holder to quicken payment of the principal amount of the instrument,plus accrued interest,upon the occurrence of an event.

A)acceleration clause
B)prepayment clause
C)extension clause
D)forestallment clause

Question 74

Give an account of the requirement for a fixed amount in negotiable instruments?

Question 75

How does an authorized representative's signature work for negotiable instruments?

Question 76

A clause in an instrument that allows the date of maturity of the instrument to be prolonged to sometime in the future is referred to as the ________.

A)forestallment clause
B)acceleration clause
C)prepayment clause
D)extension clause

Question 77

A(n)________ is an exception in promissory notes,as it does not require the maker's unconditional and affirmative promise to pay.

A)trade acceptance
B)collateral note
C)remittance advice
D)certificate of deposit

Question 78

List out the functions of a negotiable instrument.

Question 79

Roger,a certified lawyer,borrowed money from Jax to start a business.He gave a promissory note to Jax promising to pay the money back anytime within the next five years.But in order to accept the note Jax demanded a security deposit.Roger gave the gold that he owned as security.Roger in turn demanded that a specific clause be added to the promissory note to allow faster repayment of the lawn in case he inherited money within the next five years.But even after five years,Roger was unable to complete payment.He made a new promissory note promising to finish payment within the next year,and promised to provide free legal service to Jax for the next two years.
Which of the following clause did Roger ask to add in the first promissory note?

A)prepayment clause
B)acceleration clause
C)extension clause
D)forestallment clause

Question 80

A promise or order is only considered negotiable if ________.

A)the promise or order to pay is unconditional
B)it states that the promise or order is subject to or governed by another writing
C)the rights to the promise or order are stated in another writing
D)an express condition to payment is mentioned