Deck 28: Banking in the Digital Age

Question 1

Commercial banking practices consider a check that has been outstanding for three months to be a stale check.

Answer 1

False

Question 2

The rights and duties of a bank and its customer are contractual.

Answer 2

True

Question 3

An agency relationship arises between the customer and the bank when the customer writes a check on his or her account.

Answer 3

True

Question 4

A written stop payment order is only valid for thirty days.

Question 5

The Uniform Commercial Code regulates checks.

Question 6

The incompetence of a customer revokes a bank's authority to pay an item.

Question 7

A certified check is a check that has been accepted by the bank on which it is drawn.

Question 8

A customer can escape liability for failing to notify the bank of forged or altered checks when the customer can prove that the bank was negligent.

Question 9

A customer can stop payment on a check that has been certified or accepted by a bank.

Question 10

When receiving a stale check for payment, a bank has no option but to refuse to pay the check.

Question 11

A bank's duty to honor its customer's check is subject to the stipulation that the account has sufficient funds to pay the check.

Question 12

The death of a customer immediately revokes a bank's authority to pay an item.

Question 13

When a bank draws a check on itself, the check is called a certified check.

Question 14

A bank is not obligated to pay an uncertified check presented less than six months from its date.

Question 15

A drawer is liable to the holder of a check in a civil suit if the check is dishonored for insufficient funds.

Question 16

A forged signature is effective as the signature of a drawer to the extent that is resembles the drawer's actual signature.

Question 17

A check is a special type of draft.

Question 18

Only a customer or a person authorized to draw on an account can order a bank not to pay a check when it is presented for payment.

Question 19

Any failure of a bank to honor a check because it would create an overdraft is a wrongful dishonor.

Question 20

When a customer deposits cash into a checking account, he or she becomes a debtor for the amount deposited.

Question 21

Financial institutions that exchange digital images of checks must also send the original paper checks.

Question 22

A bank that encodes information on an item after its issue warrants to any subsequent bank that the information is correct.

Question 23

The first bank to receive a check for payment is the intermediary bank.

Question 24

Stored-value cards can be used to buy goods and services offered by the cards' issuer.

Question 25

Ian buys a phone in Jiffy Mart, using the means that accounts for more retail payments than any other. This means of payment is​

A) ​a debit card.
B) ​a personal check.
C) ​a commercial check.
D) ​cash.

Question 26

A customer must examine a bank statement and report any discovered forged signature to recover from the bank for the forgery.

Question 27

Drew signs a check "pay to the order of Eastern State University" drawn on Drew's account in Fidelity Bank to pay her tuition. Drew is​

A) ​the payee.
B) ​the drawee.
C) ​none of the choices.
D) ​the drawer.

Question 28

The Federal Reserve System acts as a clearinghouse where banks exchange checks.

Question 29

E-money replaces physical cash with virtual cash.

Question 30

Any local check deposited must be available for withdrawal by check or as cash within one business day from the date of deposit.

Question 31

A substitute check is a paper reproduction of an original check without all of the information required on checks for automated processing.

Question 32

Each bank in a collection chain must pass a check on before midnight of the day of its receipt.

Question 33

Ken presents an instrument that states "pay to the order of Laura" to MegaBank for payment. This instrument is the most common type of negotiable instrument, which is​

A) ​a note.
B) ​a payment via a mobile device.
C) ​a check.
D) ​a certificate of deposit.

Question 34

When a bank pays a check on which the drawer's signature is forged, generally the customer suffers the loss.

Question 35

State Bank agrees to accept a check by setting aside sufficient funds to cover the amount. This check is considered​

A) ​deposited.
B) ​cashed.
C) ​certified.
D) ​a provisional credit.

Question 36

Franco buys a sound system from Grey at Grey's garage sale. Franco writes Grey a check for $250 to pay for the system. Grey is​

A) ​the drawer.
B) ​none of the choices.
C) ​the payee.
D) ​the drawee.

Question 37

Check 21 applies in only half of the states.

Question 38

Smart cards carry and process security programming.

Question 39

A customer has two days to discover and notify the bank of any error on the monthly statement involving an electronic transfer of funds.

Question 40

A bank that pays a customer's check bearing a forged indorsement is obligated to recredit the customer's account.

Question 41

Dick signs a check "pay to the order of Sally" drawn on Dick's account in Suburban Bank. Dick has $400 in his account but the amount of the check is $500, which the bank pays. This is​

A) ​a dishonored check.
B) ​an overdraft.
C) ​a stale check.
D) ​an oversight.

Question 42

Dhani signs a check "pay to the order of Eton" drawn on Dhani's account in Fidelity Guaranty Bank and dates the check "May 1." Eton presents the check to the bank for payment on December 15. This is​

A) ​an oversight.
B) ​a stale check.
C) ​an overdraft.
D) ​a certified check.

Question 43

Shane issues a check drawn on Thrifty Bank to Farm Supply Store to pay for a rototiller. Later, Shane discovers a defect in the device and orders Thrifty to stop payment on the check. Shane does not renew the order, and the bank clears the check eight months later. The bank​

A) ​must obtain funds from Farm Supply to cover the check.
B) ​need not recredit Shane's account.
C) ​must substitute acceptable goods.
D) ​must recredit Shane's account.

Question 44

Bea writes a check for $100 drawn on Savers Credit Union and presents it to Timpani Jewelers for payment. If the check is not backed by sufficient funds, Bea may be prosecuted for​

A) ​fraud.
B) ​negligence.
C) ​forgery.
D) ​none of the choices.

Question 45

Joni writes Keizer an uncertified check for $500 drawn on Joni's account at Labor Employees Credit Union. Seven months later, Keizer presents the check for payment. The credit union pays the check in good faith without consulting Joni. The credit union​

A) ​can charge Joni's account for $500.
B) ​can charge Joni's account for $250 only.
C) ​is liable for breach of contract.
D) ​cannot charge Joni's account for any amount.

Question 46

Gary writes a check drawn on Hilltop Bank for $400 "payable to Ivan" on May 1. Gary dies on May 3. Ivan presents the check to the bank on May 5. Unaware of Gary's death, the bank​

A) ​may pay the check.
B) ​must consult with Gary's heirs before paying the check.
C) ​must certify the check.
D) ​can do nothing until Ivan claims an interest in the account.

Question 47

Brendan signs a check "pay to the order of City College Bookstore" drawn on his account in Delta Bank to pay for his current semester's textbooks. The bookstore deposits the check in its account in Eagle Bank. Like most checks, this check is​

A) ​a type of draft.
B) ​not a substitute for cash.
C) ​a nonnegotiable instrument.
D) ​a one-party instrument.

Question 48

Dana writes a check to Becky on Dana's account at Community Bank. The bank dishonors the check even though Dana has sufficient funds in her account. The bank is liable to​

A) ​the payee on Dana's next check.
B) Dana.​
C) ​Becky.
D) no one.​

Question 49

Tomas writes a check for $1,000 drawn on Unified Bank and presents it to Viola. Viola presents the check for payment to Unified Bank, which dishonors it. The party most likely liable to Viola is​

A) ​Unity Bank in a civil suit.
B) ​Tomas in a civil suit.
C) ​Tomas in a criminal prosecution.
D) ​none of the choices.

Question 50

Dalton presents an uncertified check for payment more than six months after its date. The check was drawn by Emma on her account in First Bank. If the bank follows the usual banking practice in such a case, it will​

A) ​cash the check.
B) ​refuse to cash the check.
C) ​ask Dalton what he would prefer.
D) ​consult Emma.

Question 51

Marta has a checking account with Neighbors Bank. Marta signs a check "payable to Olive" drawn on Marta's account. Neighbors Bank is​

A) ​the payee.
B) none of the choices.​
C) ​the drawer.
D) ​the drawee.

Question 52

Fact Pattern 28-1
Kelly takes her car to Auto Repair Service, which repairs the car and bills Kelly for $500. She writes out a check drawn on Choice Bank, but later, believing that Auto Repair did not fix the car properly, issues a stop-payment order.
Refer to Fact Pattern 28-1. Choice​

A) ​is liable to Auto Repair for the amount of the check.
B) ​need not follow Kelly's order because it was issued after the check.
C) ​must stop payment if Choice has a reasonable time to act.
D) ​need not follow Kelly's order unless the check was certified.

Question 53

Elmore pays First National Bank $1,000 plus a service fee to draw a check on itself made payable to Go Delivery Service. This is​

A) ​a stop-payment order.
B) ​a cashier's check.
C) ​a stale check.
D) ​an overdraft.

Question 54

Ervin signs a check "pay to the order of Felicia" drawn on Ervin's account in Garden Fields Bank. Ervin later orders the bank not to pay the check, but the bank pays it over Ervin's order. Subsequent checks written on Ervin's account "bounce." Most likely liable for the costs to Ervin is​

A) ​Garden Fields Bank.
B) ​any party to whom a subsequent check was written.
C) ​Felicia.
D) ​Ervin.

Question 55

Faye forges Greta's signature on a check "payable to the order of Faye" drawn on Greta's account in Hearthside Bank. Most likely, if the bank pays the check​

A) ​the bank will have to recredit Greta's account.
B) ​the loss will be apportioned among all of the bank's customers.
C) ​Greta will be liable for the amount.
D) ​the Federal Reserve will reimburse all parties for their costs.

Question 56

Boris can write checks on his account at City Bank. Demi steals the checks, forges Boris's signature, and cashes the checks at City. The bank is excused from any liability if, after receipt of the first forged check, Boris fails to report the forgeries within​

A) ​one month.
B) ​one day.
C) ​one year.
D) ​six months.

Question 57

Riley pays State Bank $500 plus a service fee to draw a check on itself payable to Torque Plumbing. The party that is responsible for paying the check is​

A) ​both Riley and State Bank.
B) ​none of the choices.
C) ​only State Bank.
D) ​only Riley.

Question 58

Gillis writes a check to Harley as payment for a game player but soon discovers it is broken. He goes to the drawee bank and orally authorizes Ilene, a bank officer, to stop payment on the check. This order is valid for​

A) ​six days.
B) fourteen days.​
C) ​six months.
D) ​any stated period of time.

Question 59

Fact Pattern 28-1
Kelly takes her car to Auto Repair Service, which repairs the car and bills Kelly for $500. She writes out a check drawn on Choice Bank, but later, believing that Auto Repair did not fix the car properly, issues a stop-payment order.
Refer to Fact Pattern 28-1. ​If Choice pays the check, the bank

A) ​is liable to Auto Repair for the time and trouble to return the payment.
B) ​is liable for Kelly's loss due to the wrongful payment.
C) ​can sue Auto Repair for breach of contract.
D) ​can sue Kelly for a wrongful stop-payment order.

Question 60

Brandy forges Caleb's signature on a check "payable to the order of Brandy" drawn on Caleb's account in Downtown Bank. Caleb's forged signature is​

A) ​effective if an innocent third party accepts the check.
B) ​effective to the degree that it matches Caleb's genuine signature.
C) ​effective to the extent that Downtown Bank debits Caleb's account.
D) ​not effective.

Question 61

Clyde issues a check payable to Discount Mart. Ethel, Discount's cashier, forges the store's indorsement and deposits the check in her bank account. Clyde's bank, Farmers State Bank, pays the check. Clyde can recover from​

A) ​Ethel, but not the bank.
B) ​the bank, which can recover from Ethel.
C) ​the bank, which cannot recover from Ethel.
D) ​neither Ethel nor the bank.

Question 62

Nick steals two checks from Pauline-a blank check and a check payable to the order of Retail Outlets Company, drawn on Pauline's account with State Bank. Nick forges Pauline's signature on the blank check and makes it payable to himself. Nick forges Retail Outlets's indorsement on the back of the check payable to Retail Outlets, and adds "Pay to the order of Nick." At United Credit Union, Nick indorses the back of both checks with his own name and gives them to United for cash. United does not know about the theft or the forged signatures and presents the checks to State Bank, which pays them. Pauline, who was not negligent, discovers the forgeries and asks State Bank to recredit her account. Who suffers the loss on each check?

Question 63

Smith & Jones P.A. is a business customer of Platinum Bank. Under federal law, Smith & Jones cannot demand​

A) ​any proof of payment except the bank's good faith.
B) ​monthly statements.
C) ​recrediting of its account on payment of a forged item.
D) ​the return of its original checks with its monthly statements.

Question 64

On Friday morning, Geoff deposits into his account at Heartland Bank a $500 check from Imelda, who also has an account at Heartland. On that same day, this check is considered​

A) ​cashiered.
B) ​certified.
C) ​paid.
D) a provisional credit.​

Question 65

On Monday, Ellery deposits in her account at Fiscal Bank a local check for $500. After 5:00 p.m. on Friday, from these funds, Ellery can withdraw no more than​

A) ​$100.
B) ​$400.
C) ​$500.
D) ​$600.

Question 66

Finance Bank receives a check drawn on the account of Enterprise Industries, Inc., one of the bank's customers, at 3 p.m. Friday. Dora, the presenter of the check, is not one of the bank's customers. The bank uses deferred posting with a 2 p.m. cutoff hour. If it decides to dishonor the check, it must do so by midnight​

A) ​Saturday.
B) ​Sunday.
C) ​Monday.
D) ​Tuesday.

Question 67

Misty's debit card, issued by National United Bank, is stolen and used without her permission. She tells the bank within thirty days. She may be required to pay no more than​

A) ​$5.
B) ​$50.
C) ​$500.
D) ​$5,000.

Question 68

When processing a check, Sterling Bank encodes information, such as the amount of the check, on the item. Sterling thereby warrants to any subsequent bank or payor​

A) ​the item has been returned to the drawer.
B) ​nothing.
C) ​the check has been processed manually.
D) ​the encoded information is correct.

Question 69

Daisy signs a check "pay to the order of Ewan" drawn on Daisy's account in Finance Bank. Graham forges Ewan's indorsement. Finance Bank pays the check. Most likely​

A) ​Ewan will have to pay Daisy for the amount.
B) ​the Federal Reserve will reimburse all parties for their costs.
C) ​Finance Bank will have to recredit Daisy's account.
D) ​Daisy will be liable for the amount.

Question 70

On an automated teller machine (ATM) belonging to USA Bank, Sven placed a card-skimming device to pull information from the magnetic strips of users' debit cards. The device then transmitted the stolen data to thieves who used it to gain access to, and empty, the bank accounts of the users, including Megan. Megan learned of the theft the next day and promptly notified USA. Is Megan entitled to a recredit of her account for the most of the loss due to the theft? Explain.

Question 71

Ridgeline Bank creates a paper reproduction of customer Sophie's check with the statement "This is a legal copy of your check. You can use it in the same way you would use the original check." This is​

A) ​a certified check.
B) ​a cashier's check.
C) ​a substitute check.
D) ​a void check.

Question 72

Maya uses e-money consisting of funds stored on microchips in her laptop, phone, and tablet to pay bills. E-money is replacing physical cash with virtual cash in the form of​

A) ​coins and paper currency.
B) ​electronic impulses.
C) ​checks.
D) ​none of the choices.