Question 1

Johnny writes a check to Katie as payment for a 3D DVD player but soon discovers the player is broken. He goes to the drawee bank and orally authorizes Sissy, a bank officer, to stop payment on the check. This order is valid for
A) fourteen days.
B) fourteen months.
C) six days.
D) six months.

Accepted Answer

The answer of Johnny writes a check to Katie as...

Question 2

Roald writes a check for $700 to Savannah. Savannah indorses the check in blank and transfers it to Twitchell, who alters the check to read $7,000 and presents it to Union Bank, the drawee, for payment. The bank cashes it. Roald discovers the alteration and files a suit against the bank. Roald can recover
A) $7,000.
B) $6,300.
C) $700.
D) 0.

Accepted Answer

The answer of Roald writes a check for $700 to...

Question 3

Thelma signs a check "pay to the order of Uri" drawn on Thelma's account in Verity Bank. Thelma has $400 in her account but the amount of the check is $500, which the bank pays. This is
A) a dishonored check.
B) an overdraft.
C) a postdated check.
D) a stale check.

Accepted Answer

This is an overdraft, as Thelma has written a check for more than the balance available in her account.

Question 4

Liu signs a check "pay to the order of Marv" drawn on Liu's account in National Bank. Liu later orders National not to pay the check, but the bank pays it over Liu's order. Subsequent checks written on Liu's account "bounce." Most likely liable for the costs to Liu is
A) any party to whom a subsequent check was written.
B) Liu.
C) Marv.
D) National.

Accepted Answer

National Bank is liable for the costs incurred by Liu due to their mistake of paying the check over Liu's order. As per the law, a bank is obligated to honor a check that is lawfully drawn, and any subsequent payments made by the bank are considered wrongful payments. Therefore, National Bank, and not Marv or any other party, is liable for the costs incurred by Liu due to the bounced checks.

Question 5

Brandy forges Caleb's signature on a check "payable to the order of Brandy" drawn on Caleb's account in Delphi 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.

Accepted Answer

Forgery is a crime and the forged signature is not legally effective. The bank would not honor the check and Caleb would not be responsible for any transactions made with the forged check.

Question 6

eBank, an online financial institution, gives financial information about Frieda and other customers to a federal agency. eBank may be in violation of federal law
A) if the agency did not have a warrant.
B) if the institution is not deemed to be a bank.
C) if the institution did not issue its customers credit or debit cards.
D) under none of these circumstances.

Accepted Answer

The answer of eBank, an online financial institution, gives financial...

Question 7

Elmer can write checks on his account at Finance City Bank. Gina steals the checks, forges Elmer's signature, and cashes the checks at Finance City. The bank is excused from any liability if, after receipt of the first forged check, Elmer fails to report the forgeries within
A) five days.
B) fourteen days.
C) one year.
D) three years.

Accepted Answer

The answer of Elmer can write checks on his account...

Question 8

Rikki signs a check "pay to the order of Scholar University" drawn on Rikki's account in State Bank to pay her tuition. Rikki is
A) the certifier.
B) the drawee.
C) the drawer.
D) the payee.

Accepted Answer

The person who signs a check and is authorizing the transfer of funds from their account to another is the drawer. In this case, Rikki is the one signing the check to pay her tuition, making her the drawer. The payee is Scholar University, the entity receiving the funds. The drawee is the bank (State Bank) where the funds are being drawn from. The certifier would be a third party who confirms that the funds are available in the account before the check is cashed or deposited, which is not applicable in this scenario.

Question 9

Darwin signs a check "pay to the order of Eva Marie" drawn on Darwin's account in First Funds Bank and dates the check "April 1." Eva Marie presents the check to the bank for payment on November 12. This is
A) a stop-payment order.
B) an overdraft.
C) a postdated check.
D) a stale check.

Accepted Answer

The check is considered stale because it is presented for payment more than six months after the date written on it.

Question 10

Shakira issues a check drawn on Thrifty Bank to United Office Supply to pay for six computer desks. Later, Shakira discovers defects in the goods and orders Thrifty to stop payment on the check. Shakira does not renew the order, and the bank clears the check eight months later. The bank
A) must recredit Shakira's account.
B) must obtain funds from United to cover the amount of the check.
C) must substitute acceptable goods.
D) need not recredit Shakira's account.

Accepted Answer

When a stop payment order is requested, the bank is not obligated to recredit the customer's account. As Shakira did not renew the order, the bank cleared the check as usual. The responsibility to resolve the issue lies between Shakira and United Office Supply.

Question 11

Fact Pattern 27-1A  
Mike loses his National Bank access card. He realizes his loss the next day but waits a week to call National. Meanwhile, Opal finds and uses Mike’s card to withdraw $3,000 from Mike’s account.
-Refer to Fact Pattern 27-1A. When Mike receives his National statement, he demands that the bank investigate the matter and recredit his account. The bank
A) has no duty to investigate.
B) must investigate and, if the dispute is not resolved within ten days, recredit Mike's account (at least until the dispute is resolved).
C) must investigate and immediately recredit Mike's account (at least until the dispute is resolved).
D) must investigate but need not recredit Mike's account.

Accepted Answer

The answer of Fact Pattern 27-1A  
Mike loses his...

Question 12

Drew signs a check "pay to the order of Eppie" drawn on Drew's account in Fidelity Bank. Greta forges Eppie's indorsement. Fidelity pays the check. Most likely
A) Drew will be liable for the amount.
B) Eppie will have to pay Drew for the amount.
C) Fidelity will have to recredit Drew's account.
D) the Federal Reserve will reimburse all parties for their costs.

Accepted Answer

The answer of Drew signs a check "pay to the...

Question 13

Elmo 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 cashier's check.
B) a certified check.
C) a trade acceptance.
D) a traveler's check.

Accepted Answer

The answer of Elmo pays First National Bank $1,000 plus...

Question 14

First Community Bank agrees to accept a check by setting aside sufficient funds to cover the amount. This check is considered
A) cashed.
B) certified.
C) deposited.
D) provisionally credited.

Accepted Answer

When First Community Bank agrees to accept a check by setting aside sufficient funds to cover the amount, it is considered a certified check.

Question 15

Scott presents an instrument that states "pay to the order of Scott" to Town Bank for payment. This instrument is the most common type of negotiable instrument, which is
A) a certificate of deposit.
B) a check.
C) a note.
D) a trade acceptance.

Accepted Answer

The instrument described in the question is a check, which is a common type of negotiable instrument used for making payments from one person or entity to another. A certificate of deposit is a type of investment instrument, a note is a written promise to pay a debt, and a trade acceptance is a type of negotiable instrument used in commercial transactions. None of these would be the best choice given the circumstances presented in the question.

Question 16

On Monday morning, Bob deposits into his account at County Bank a $500 check from Dyna, who also has an account at County Bank. On that same day, this check is considered
A) cashiered.
B) certified.
C) paid.
D) provisionally credited.

Accepted Answer

The check is provisionally credited because the bank has not yet received the funds from Dyna's account. It will need to go through the clearing process to be considered paid.

Question 17

Paris knowingly divulges to Media Exposure magazine information about Randy's e-money payments to City Bank without the consent of Randy or City Bank. Paris may be in violation of federal law
A) if the e-payments were in transmission at the time.
B) if the e-payments have not yet been made.
C) if the e-payments are not represented by paper checks.
D) under none of these circumstances.

Accepted Answer

If the e-payments were in transmission at the time of disclosure, Paris may be in violation of the Electronic Funds Transfer Act, which prohibits the disclosure of information related to a funds transfer before the completion of the transfer.

Question 18

Kareem writes a check for $1,000 drawn on Liberty Bank and presents it to Maris. Maris presents the check for payment to Liberty Bank, which dishonors it. The party most likely liable to Maris is
A) Kareem in a civil suit.
B) Kareem in a criminal prosecution.
C) Liberty Bank in an administrative proceeding.
D) the Federal Reserve.

Accepted Answer

Kareem is the one who wrote the check and therefore has the responsibility to make sure there are sufficient funds to cover it. Maris can sue Kareem in a civil court to recover the money owed. Neither a criminal prosecution nor an administrative proceeding against Liberty Bank or the Federal Reserve would hold them liable for Kareem's insufficient funds.

Question 19

Fact Pattern 27-1A  
Mike loses his National Bank access card. He realizes his loss the next day but waits a week to call National. Meanwhile, Opal finds and uses Mike’s card to withdraw $3,000 from Mike’s account.
-Refer to Fact Pattern 27-1A. Mike is responsible for
A) $0.
B) $50.
C) $500.
D) $3,000.

Accepted Answer

Mike is responsible for up to $500 because he waited more than two business days to report the loss of his card to the bank. If he had reported it within two business days, his liability would have been limited to $50 under the Electronic Fund Transfer Act. However, because he waited a week, his liability can be up to $500.

Question 20

Smith & Jones Associates is a business customer of Superior Bank. Under federal law, Smith & Jones cannot demand
A) any proof of payment except Superior'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.

Accepted Answer

Under federal law, business customers like Smith & Jones Associates are not entitled to the return of their original checks with their monthly statements. This is known as "check truncation" and is allowed as part of the Check Clearing for the 21st Century Act (Check 21). However, business customers still have the right to request copies of their checks from their bank. Options A, B, and C are all rights that business customers are entitled to under federal law.

Quiz 27: Checks and Banking in the Digital Age

Johnny writes a check to Katie as payment for a 3D DVD player but soon discovers the player is broken. He goes to the drawee bank and orally authorizes Sissy, a bank officer, to stop payment on the check. This order is valid for

Thelma signs a check "pay to the order of Uri" drawn on Thelma's account in Verity Bank. Thelma has $400 in her account but the amount of the check is $500, which the bank pays. This is

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

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

eBank, an online financial institution, gives financial information about Frieda and other customers to a federal agency. eBank may be in violation of federal law

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

Rikki signs a check "pay to the order of Scholar University" drawn on Rikki's account in State Bank to pay her tuition. Rikki is

Darwin signs a check "pay to the order of Eva Marie" drawn on Darwin's account in First Funds Bank and dates the check "April 1." Eva Marie presents the check to the bank for payment on November 12. This is

Shakira issues a check drawn on Thrifty Bank to United Office Supply to pay for six computer desks. Later, Shakira discovers defects in the goods and orders Thrifty to stop payment on the check. Shakira does not renew the order, and the bank clears the check eight months later. The bank

Drew signs a check "pay to the order of Eppie" drawn on Drew's account in Fidelity Bank. Greta forges Eppie's indorsement. Fidelity pays the check. Most likely

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

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

Scott presents an instrument that states "pay to the order of Scott" to Town Bank for payment. This instrument is the most common type of negotiable instrument, which is

On Monday morning, Bob deposits into his account at County Bank a $500 check from Dyna, who also has an account at County Bank. On that same day, this check is considered

Paris knowingly divulges to Media Exposure magazine information about Randy's e-money payments to City Bank without the consent of Randy or City Bank. Paris may be in violation of federal law

Kareem writes a check for $1,000 drawn on Liberty Bank and presents it to Maris. Maris presents the check for payment to Liberty Bank, which dishonors it. The party most likely liable to Maris is

Fact Pattern 27-1A Mike loses his National Bank access card. He realizes his loss the next day but waits a week to call National. Meanwhile, Opal finds and uses Mike’s card to withdraw $3,000 from Mike’s account. -Refer to Fact Pattern 27-1A. Mike is responsible for

Smith & Jones Associates is a business customer of Superior Bank. Under federal law, Smith & Jones cannot demand