Deck 22: Banking System and Electronic Financial Transactions

Question 1

The party to whom a check is written is called the ________.

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

Answer 1

C

Question 2

In banking terminology,a creditor-debtor relationship is created when a customer ________.

A) fails to maintain adequate funds in his bank checking account
B) makes a deposit into a bank
C) writes a check against his account
D) writes a postdated check drawn on his bank

Answer 2

B

Question 3

________ of the Uniform Commercial Code establishes rules that regulate the creation and collection of and liability for wire transfers.

A) Article 3
B) Article 4
C) Article 4A
D) Article 5

Answer 3

C

Question 4

Article 4A of the Uniform Commercial Code establishes the ________.

A) requirements for negotiable instruments, such as checks
B) rules and principles that regulate bank deposit and collection procedures for checking accounts offered by commercial banks
C) rules that regulate the creation and collection of and liability for wire transfers
D) guidelines for ownership of securities by investors

Question 5

The bank on which a check is drawn is called the ________.

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

Question 6

________ of the Uniform Commercial Code establishes the requirements for negotiable instruments.

A) Article 3
B) Article 4
C) Article 4A
D) Article 5

Question 7

A(n)________ is an order by the drawer to the drawee bank to pay a specified sum of money from the drawer's checking account to the named payee (or holder).

A) ordinary check
B) promissory note
C) bill of exchange
D) credit memo

Question 8

A certified check must contain the ________.

A) amount being certified
B) amount in the account certification
C) amount in the account after certification
D) title of the person who owns the bank

Question 9

Jill Scott is an accountant with Cameron and Associates,a law firm in Seattle.The firm maintains a checking account with Southern Rock Bank for its operating expenses.On the 10th of every month,Jill gets an inventory report from the office manager listing the office supplies that are needed.Jill places the appropriate orders with Office Depot and writes them a check against the office's checking account.In the above banking transaction,Cameron and Associates is the ________.

A) indorser
B) payee
C) drawer
D) holder

Question 10

Raj receives a check for $100 from Sheldon.He signs the back of the check and turns it over to Leo to pay off the $100 he owed Leo.In this case,Raj is the ________.

A) drawer
B) drawee
C) indorser
D) indorsee

Question 11

A ________ relationship is created if the deposit is a check that the bank must collect for the customer or the customer writes a check against his or her account.

A) push-pull
B) creditor-debtor
C) principal-agent
D) payee-cashier

Question 12

Which of the following is one of the provisions of Article 4 of the Uniform Commercial Code?

A) establishing the requirements for negotiable instruments, such as checks
B) establishing the rules and principles that regulate bank deposit procedures for checking accounts offered by commercial banks
C) stipulating the rules that regulate the creation and collection of and liability for wire transfers
D) reviewing and revising guidelines for ownership of securities by investors

Question 13

A(n)________ check is a type of check for which a bank agrees in advance to accept the check when it is presented for payment.

A) certified
B) stale
C) promissory
D) ordinary

Question 14

Jill Scott is an accountant with Cameron and Associates,a law firm in Seattle.The firm maintains a checking account with Southern Rock Bank for its operating expenses.On the 10th of every month,Jill gets an inventory report from the office manager listing the office supplies that are needed.Jill places the appropriate orders with Office Depot and writes them a check against the office's checking account.Who is the drawee in this banking transaction?

A) Jill Scott
B) Office Depot
C) Cameron and Associates
D) Southern Rock Bank

Question 15

Article 3 of the Uniform Commercial Code establishes the ________.

A) requirements for negotiable instruments, such as checks
B) rules that regulate bank deposit procedures for checking accounts
C) rules that regulate the creation and collection of and liability for wire transfers
D) guidelines for ownership of securities by investors

Question 16

Ram receives a check for $100 from Sharon.He signs the back of the check and turns it over to Luke to pay off the $100 he owed Luke.The check is now said to be ________.

A) certified
B) indorsed
C) drawn
D) stale

Question 17

The ________ of a check is the customer who maintains the checking account and writes checks against the account.

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

Question 18

A cashier's check is a(n)________ check.

A) single-party
B) two-party
C) ordinary
D) invalid

Question 19

A check issued by a bank for which the customer has paid the bank the amount of the check and a fee is called a(n)________ check.

A) certified
B) stale
C) cashier's
D) ordinary

Question 20

________ of the Uniform Commercial Code establishes the rules and principles that regulate check-like accounts offered by financial institutions,other than banks.

A) Article 3
B) Article 4
C) Article 4A
D) Article 5

Question 21

An oral stop-payment order is binding on the bank for ________.

A) 14 calendar days
B) 12 calendar weeks
C) 14 calendar months
D) 12 calendar years

Question 22

A check that has been outstanding for over six months is considered ________.

A) honored
B) stale
C) indorsed
D) certified

Question 23

A stop-payment order can be ordered only by the ________.

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

Question 24

Francis Jeffers purchased a cashier's check in the amount of $5,000 from Northern Star Bank.The check was made payable to Kyle Naughton and was delivered to him.Twelve months later,the Northern Star Bank branch manager informed Jeffers that the cashier's check was still outstanding.Jeffers subsequently signed a form,requesting that payment be stopped and a replacement check be issued.Northern Star Bank issued a replacement check to Jeffers.Eight months later,Naughton deposited the original cashier's check in his bank,which was paid by Northern Star Bank.Northern Star Bank requested that Jeffers repay the bank $5,000.When he refused,Northern Star Bank sued Jeffers to recover this amount and the court awarded Northern Star Bank damages amounting to $5,500.Which of the following,had it happened,would have resulted in the court ruling in Jeffers' favor?

A) Jeffers cashed the replacement check before Naughton had presented the original check at his bank.
B) Jeffers paid Naughton the $5,000 in cash after obtaining the replacement check from Northern Star Bank.
C) Jeffers indemnified Northern Star Bank for potential damages arising from the issue of the replacement check.
D) Jeffers renewed the stop-payment order on the original check at the end of six months.

Question 25

A postdated check must be accompanied by a ________.

A) separate written notice to the bank
B) verbal request
C) proof of identification of all parties
D) written permission from the judiciary

Question 26

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

A) six months
B) one year
C) three months
D) nine months

Question 27

Which of the following is implied when a bank certifies a check?

A) The bank agrees to accept the check when it is presented for payment.
B) The bank cashes the check only if the holder himself presents it for payment.
C) The bank withholds payment on the check until the drawer authorizes payment.
D) The bank holds the check as guarantee for repayment of a loan taken by a customer.

Question 28

Rachel,who owes Sam $500,draws a check payable to Sam on her checking account at City Bank.Rachel signs the check but leaves the amount blank.Sam fraudulently fills in $10,000 and presents the check to City Bank,which pays it.In this case,________.

A) City Bank can charge Rachel's account $ 10,000
B) City Bank cannot pay Sam the full amount
C) City Bank must charge Sam's account $10,000
D) City Bank must immediately contact Rachel

Question 29

Mrs.Dawson wrote a check to Kevin for $50 on New Year's Day for clearing the snow from her driveway on Christmas Eve.When Kevin tries to cash the check at Mrs.Dawson's bank,however,he is told that the check is stale.Which of the following is the most likely reason for Mrs.Dawson's check being dishonored by the bank?

A) Mrs. Dawson did not have enough funds in her checking account.
B) Mrs. Dawson had dated the check for the previous year instead of the current year.
C) Mrs. Dawson had not identified Kevin as the payee while writing out the check.
D) Mrs. Dawson had given Kevin a check which was dated more than six months ahead of the date of issue.

Question 30

A written stop-payment order is valid for ________.

A) twelve days
B) six weeks
C) six months
D) twelve months

Question 31

Which of the following statements is true of certified checks?

A) Banks are obligated to certify checks that are for amounts greater than $10,000.
B) Certified checks are payable at any time from the date they are issued.
C) A drawer can stop payment on a certified check if it is indorsed.
D) Banks can charge a fraction of the check value as a fee for certifying it.

Question 32

A check that a drawer does not want cashed until sometime in the future is called a(n)________ check.

A) ordinary
B) stale
C) certified
D) postdated

Question 33

Timothy is owed $1,000 by Greg,who gives him a check to repay the amount.When Timothy presents it at Greg's bank five months later,however,the bank refuses to pay the check.The bank was willing to act in good faith,but is not liable for the dishonor of the check.Which of the following,if true,would explain the dishonor of the check by Greg's bank?

A) Timothy filled in his name as the payee on the check as Greg had forgotten to do so.
B) Greg had not filled in the amount, so Timothy duly wrote $1,000 on the check before he presented it to the bank.
C) Greg had issued a stop-payment order on the check immediately after giving it to Timothy.
D) Greg had postdated the check four months from the date of giving the check to Timothy.

Question 34

John writes out a check for $100 on his account at the Sacred Heart Bank to repay the $100 he owes Perry.He gives the check to Eliot and tells her to hand it over to Perry.However,Eliot loses the check before she can hand it to Perry.Later,John realizes that he had not written Perry's name on the lost check.According to the provisions of the UCC,the risk of loss of the check should be placed on ________.

A) Eliot
B) Perry
C) John
D) Sacred Heart Bank

Question 35

In which of the following cases is an overdraft created in a drawer's account?

A) when a properly payable check issued by the drawer is presented for payment, but the drawer's account does not have sufficient funds in it
B) when the drawer issues a stop-payment order for a check, but the bank still goes ahead and pays the holder of the check
C) when the bank pays the holder of a check in which the amount payable is altered to indicate a higher amount than was originally intended
D) when the payee presents the check after six months from the date of the check and the bank still pays the holder

Question 36

Which of the following is an accurate description of wrongful dishonor of a check?

A) A bank refuses to honor a properly payable check when there are sufficient funds in the drawer's account.
B) A bank refuses to honor a certified check when it is presented for payment more than a year from its date of issue.
C) A bank refuses to honor a check which has been outstanding for only a few days more than six months from the date of issue.
D) A bank refuses to honor an ordinary check when it believes that the payee has altered the amount on the check.

Question 37

In which of the following cases is a bank obliged to file a Currency Transaction Report (CTR)with the Internal Revenue Service?

A) The bank receives instructions from a customer to certify an ordinary check worth $10,000 issued in a foreigner's name.
B) The bank receives an ordinary check worth $13,000 payable to a customer's checking account.
C) A customer deposits $20,000 through a cashier's check in his checking account.
D) A customer issues stop-payment instructions on a check worth $15,000 issued to a payee.

Question 38

When a bank pays the holder of a properly drawn check,it is said to have ________ the check.

A) certified
B) indorsed
C) honored
D) collected

Question 39

A person can purchase a(n)________ from a bank by paying the bank the amount of the check plus a fee for issuing the check.

A) indorsed check
B) ordinary check
C) blank check
D) cashier's check

Question 40

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

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.

Question 41

Instead of depositing an "on them" check for collection,a depositor can physically submit the check for payment at the payer bank.This is called ________.

A) provisional credit
B) indorsement of the check
C) presentment across the counter
D) final settlement

Question 42

The bank where the payee or holder of a check has an account is known as the ________.

A) payer bank
B) depository bank
C) intermediary bank
D) private bank

Question 43

Which of the following regulatory agencies was set up under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act?

A) Federal Deposit Insurance Corporation
B) Bureau of Consumer Financial Protection
C) National Credit Union Administration
D) U.S. Securities and Exchange Commission

Question 44

A check that has been modified without authorization and thus modifies the legal obligation of a party is known as a(n)________.

A) stale check
B) incomplete check
C) altered check
D) forged check

Question 45

Which of the following describes the "deferred posting rule"?

A) Banks can fix an afternoon hour of 2:00 or later as a cutoff hour for the purpose of processing checks and deposits.
B) When a customer deposits a check for collection, the depository bank does not have to pay the customer until the check clears.
C) Banks have to mail their checking account customers monthly statements of their accounts and any canceled checks should accompany this statement.
D) A customer is liable for payment to his bank if he fails to report any unauthorized transactions within 30 days from the receipt of the account statement.

Question 46

The ________ is a government agency that insures deposits at most banks and savings institutions in the United States.

A) Federal Deposit Insurance Corporation
B) Federal Reserve System
C) Resolution Trust Corporation
D) Bureau of Federal Credit Unions

Question 47

George,John,Paul,Ringo,and Brian are five friends from Iowa.George owes John $100,John owes Paul $200,Paul owes Ringo $300,and Ringo owes Brian $400.John and Paul find a check belonging to George.John names himself as the payee on the check,fills in $200 as the amount,and forges George's signature on it.He indorses the check to Paul and asks him to consider his debt repaid,while keeping the knowledge of the forgery to himself.Paul,in turn,indorses the check to Ringo and pays Ringo the remaining $100 in cash.Ringo indorses the check to Brian,who presents the check to George's bank and receives payment.Who among the following can the bank recover the money from,once the forgery is detected?

A) George
B) Paul
C) Brian
D) Ringo

Question 48

Which of the following is one of the purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act?

A) monitoring the legitimacy of consumer and commercial wire transfers
B) establishing the reporting requirements for financial transactions, including off-balance-sheet transactions
C) regulating previously unregulated financial products and institutions
D) overseeing, inspecting, and disciplining accounting firms in their roles as auditors of public companies

Question 49

If there are major failures of several large banks or many small banks,and the FDIC insurance fund is insufficient to cover all of the depositors' losses,which of the following bodies is responsible for paying the depositors money owed by the FDIC?

A) the Federal Reserve System
B) the boards of the failed banks
C) the National Credit Union Administration
D) the U.S. government

Question 50

The bank where the drawer has a checking account and on which a check is drawn is called the ________ bank.

A) payer
B) depository
C) collecting
D) intermediary

Question 51

The ________ is a federal statute,enacted by the Congress in 2010,which reorganizes federal government supervision of the banking system,regulates previous unregulated financial products and institutions,and adds a new consumer protection agency to protect consumers from abusive lending and banking practices.

A) Dodd-Frank Wall Street Reform and Consumer Protection Act
B) Depository Institutions Deregulation and Monetary Control Act
C) Financial Institutions Reform, Recovery, and Enforcement Act
D) Riegle-Neal Interstate Banking and Branching Efficiency Act

Question 52

A check is finally paid when ________.

A) the depository bank credits the customer's account with an option to reverse the credit in case of dishonoring of the check
B) the payer bank fails to dishonor the check within certain statutory time periods
C) the drawer settles for the check while holding a right to revoke the settlement
D) the final bank in the collection process tentatively credits the account of the prior transferor

Question 53

The bank where the payee or holder has an account is called the ________.

A) payer
B) depository
C) promissory
D) intermediary

Question 54

Which of the following is one of the provisions of the Electronic Funds Transfer Act and Regulation E of the Federal Reserve Board?

A) A bank can send unsolicited EFTS debit cards to a consumer only if the cards are valid for use.
B) If a customer notifies the issuing bank of a stolen or lost debit card within two days of the loss, the customer's liability is limited to a maximum of $500.
C) A bank must provide annual statements of electronic funds transfers to customers who conduct such transactions in a given financial year.
D) Other than for a telephone transaction, a bank must provide a customer with a written receipt of a transaction made through a computer terminal.

Question 55

In which of the following cases is a bank considered liable for unauthorized payments?

A) if the bank does not attach canceled checks to the monthly statements of account
B) if the bank does not provide images of paid checks online
C) if the bank destroys original copies of canceled checks not sent to customers after seven years from the date of the check
D) if the bank does not provide sufficient information on checks paid to customers in their monthly account statements

Question 56

The original tenor is the ________.

A) original amount for which the drawer wrote a check
B) original amount in the bank account before the check was honored
C) amount in the bank after the check was honored
D) original amount the drawee intended to be paid

Question 57

If a drawer and a payee or holder have accounts at different banks,the payer bank and depository bank are not the same bank.In this case,the check is called a(n)________.

A) non-negotiable instrument
B) presentment warranty
C) stale check
D) on them item

Question 58

The amount of money a drawer owes a bank after it has paid a check despite the drawer's account having insufficient funds is termed ________.

A) overdraft
B) undercurrent
C) original tenor
D) acquired tenor

Question 59

The term ________ refers to the computer and electronic technology that makes it possible for banks to offer electronic payment and collection systems to bank customers.

A) electronic protocols application software (EPAS)
B) electronic funds transfer system (EFTS)
C) originating depository financial institution (ODFI)
D) open real-time currency application (ORCA)

Question 60

The Pittsburgh Peelers are a professional soccer team playing in the national league.They recently approached Darth Water,a leading sports-drink manufacturer,to sponsor their team for the upcoming season.Darth Water agrees to sponsor the team for an amount of $1 million,to be paid in installments over the course of the season.Darth Water instructs its bank,Orange County Bank,to wire the funds to Pittsburgh Peelers' bank,the Jersey Shore Bank,with instructions to credit Pittsburgh Peelers' account.Which of the following parties is the originator of the wire transfer in the above case?

A) Pittsburgh Peelers
B) Jersey Shore Bank
C) Darth Water
D) Orange County Bank

Question 61

The Federal Bureau of Investigation (FBI)is authorized to investigate forgeries,bank fraud,and other financial crimes.

Question 62

A written stop-payment order is effective for one year.

Question 63

A forged signature is wholly inoperative as the signature of the drawer.

Question 64

The bank where the drawer has a checking account and on which a check is drawn is called a depository bank.

Question 65

Banks are obligated to certify all checks.

Question 66

Article 3 of the UCC establishes the rules and principles that regulate bank deposit and collection procedures.

Question 67

The UCC places the risk of loss of an incomplete item on the payee.

Question 68

A bank's refusal to certify a check does not amount to the dishonor of the check.

Question 69

Article 4 of the UCC sets forth the requirements for negotiable instruments,including checks.

Question 70

In a relationship that is created when a customer deposits money into the bank,the customer is the debtor.

Question 71

A cashier's check is a single-party check.

Question 72

The drawer of the check is the bank on which a check is drawn.

Question 73

To require a bank to abide by a postdated check,the drawer must give a separate written notice to the bank,describing the check with reasonable certainty.

Question 74

The drawer's failure to report a forged or altered check to the bank within one year of receiving the bank statement and canceled checks containing it relieves the bank of any liability for paying the instrument.

Question 75

An oral order to stop payment of a check is invalid.

Question 76

A check that has been outstanding for less than three months is called a stale check.

Question 77

Checks are the most common form of negotiable instrument used in the United States.

Question 78

The party to whom the check is written is called the payee.

Question 79

Article 4A of the UCC establishes rules regulating the creation and collection of and liability for wire transfers.

Question 80

A bank that pays a stale check in good faith is not allowed to charge the drawer's account.