Deck 25: Business and Banking

Question 1

Which of the following would strongly suggest to a court that a bank has entered into a fiduciary relationship with its customer?

A) the non-traditional provision of financial advice to its customer
B) FCAC regulations' onerous fiduciary duties on banks
C) CFSON regulations' onerous fiduciary duties on banks
D) an implied common law expectation of competent financial advice

Answer 1

A

Question 2

Which of the following is subject to the law of negotiable instruments?

A) credit cards
B) money laundering
C) cheques
D) electronic transfers

Answer 2

C

Question 3

As a result of the worldwide financial crisis, which of the following is a valid criticism of regulations created by the Bank for International Settlements with regard to international banking services?

A) The ability to conduct cross-border transactions was limited.
B) Voluntary governance rules failed to provide adequate protections.
C) Accounts in different currencies were prohibited.
D) The use of international letters of credit was too limited.

Answer 3

B

Question 4

Why should a commercial customer be cautious with regard to its bank-customer agreement?

A) Banks create agreements to limit their duties and liabilities.
B) Banks can transfer funds to cover negative balances.
C) Bargaining for greater flexibility can create an advantage.
D) Bargaining can limit a bank's ability to apply service charges.

Question 5

Highland Bakery Inc. has forwarded a cheque to Prairie Flour Mills Ltd. to pay Prairie's invoice for the flour it recently delivered. Prairie will deposit the cheque into its account upon receipt. How will the actual cash payment represented by the cheque be credited to Prairie Flour Mills' account?

A) through the bank's bills of exchange clearance centre
B) through the instantaneous Internet transfer process
C) through the bank's centralized clearing process
D) through the FINTRAC centralized clearing process

Question 6

What is the name given to a person who has possession of a negotiable instrument?

A) holder
B) drawer
C) holder in due course
D) payee

Question 7

Which of the following would most strongly support the controversy surrounding the relaxation of bank regulation in Canada?

A) Provincial regulations lack customer protections.
B) Lax regulation caused a worldwide financial crisis.
C) Banks take on increasing risk exposure in international transactions.
D) The federal Bank Act offers little protection to bank customers.

Question 8

Which of the following imposes an obligation upon banks to honour cheques and repay deposits?

A) provincial legislation
B) banking agreement
C) federal Bank Act
D) banking practice and common law

Question 9

Tess deposited the $75 000 she received from the sale of her business into her daily interest savings account. What is the legal nature of the relationship created between Tess and her banking institution?

A) Tess is the debtor, and the bank is the creditor.
B) The bank must report the transaction to FINTRAC.
C) The bank must verify the viable commercial source of the funds.
D) Tess is the creditor, and the bank is the debtor.

Question 10

Which of the following would be most strongly influenced by an honoured cheque?

A) centralized clearing process
B) inadequate funds in an account
C) evidence of discharge of a debt
D) unambiguous payment instructions

Question 11

In what way do banks, trust companies, stockbrokerages, and insurance companies share a commonality with one another?

A) Each institution ensures stability within the financial services industry.
B) Liberalized ownership rules are traditionally applied to the four sectors.
C) Each is subject to the same regulations affecting the financial services industry.
D) The traditional financial services industry contained the four distinct sectors.

Question 12

Which of the following is a duty imposed upon a customer by common law, with respect to the banking relationship between the customer and his or her bank?

A) to make use of restrictive endorsements whenever possible
B) to maintain adequate funds for issued cheques in an account
C) to detect unauthorized instructions within a reasonable time
D) to safeguard PINs from unauthorized use

Question 13

What essential technical requirement must be present in order for an instrument to become negotiable without investigation as to its validity through reference to circumstances or other documents?

A) a payee's endorsement
B) an authorized signature
C) a drawer's endorsement
D) an unconditional obligation

Question 14

What distinguishes a cheque from a bill of exchange?

A) Cheques fail to create a self-contained obligation.
B) The party instructed to pay is the bank.
C) Bills of exchange are negotiable instruments.
D) Bills of exchange are regulated by the Bills of Exchange Act.

Question 15

Which of the following is most likely to influence the arrangements concerning the issue of cheques and instructions for payment by the customer?

A) banking practice
B) a bank-customer agreement
C) a banking agreement
D) an operation of account agreement

Question 16

Since 1991, Canadian banking institutions, among others, have been urged to verify the identity of individual and corporate customers to determine the source of money transfers that exceed a certain amount. What is that amount?

A) $500015 000
B) $10 0005000
C) $15 000
D) $20 000

Question 17

How would a written contract containing an unconditional order to pay a specific sum on demand to a specific bearer most likely be classified?

A) as a promissory note
B) as a cheque
C) as a negotiable instrument
D) as a bill of exchange

Question 18

To which of the following is the bank's duty to maintain the secrecy of customer information subject?

A) fraud and forgery legislation
B) money laundering legislation
C) federal privacy legislation
D) provincial privacy legislation

Question 19

Which of the following formerly applied to banks, trust companies, stockbrokerages, and insurance companies?

A) participation by banks and trust companies in the insurance sector
B) liberal ownership rules for national banking institutions
C) prohibition from conducting business beyond a sector
D) ability of subsidiary companies to sell insurance on websites

Question 20

What is the second focus of a banking agreement?

A) the rights and obligations of the parties
B) the allocation of loss
C) the protection of privacy
D) the bank's ability to apply charges

Question 21

Which of the following would most likely strongly support a retailer qualifying for a guarantee of payment on credit card sales?

A) negotiability requirements
B) the irrevocability of the transaction
C) the secure status of the Internet provider
D) the verification of signatures

Question 22

Which of the following is a valid criticism of electronic transactions?

A) Safeguarding transfer authority is a major challenge for e-commerce.
B) Authorization codes are necessary in electronic messages.
C) There is a tradeoff between increased efficiency and the absence of rules.
D) Safeguarding transfer authority is a major challenge for customers.

Question 23

Emily gave Pierre a cheque for $5000 as payment for the car he sold her. Pierre owed Henry $5000, and he provided Emily's cheque to Henry to satisfy the debt. Henry couldn't make it to the bank, so he gave it Nigel to deposit for him. How did Henry's bank respond to Nigel's request to deposit the cheque?

A) The Bills of Exchange Act required the bank to hold the cheque for 10 days.
B) Provided all endorsements were in order, the bank accepted the cheque for deposit.
C) The bank refused the cheque because acceptance effectively extended credit.
D) The bank was required by FINTRAC to verify the validity of the transaction.

Question 24

How has the Criminal Code been modified to help to combat the increase of electronic identity theft?

A) It is now illegal to possess or traffic in government-issued identity documents.
B) Internet providers must now block and report e-mail phishing.
C) The disclosure of information to verify accounts is mandatory.
D) It defined electronic storage as data subject to system crashes or hackers.

Question 25

Which of the following resulted from the reclassification of non-commercial promissory notes, enacted to ensure payment is subject to claims arising from the original contract of sale?

A) bills of exchange
B) holder in due course
C) consumer notes
D) letters of intent

Question 26

Which of the following may provide an individual without a bank account with the means for conducting online banking?

A) PayPal
B) smart card
C) cellphone
D) credit card

Question 27

Why are banks placing daily and weekly monetary limits on transactions?

A) to shift risk allocation for the finalization of payments
B) to shift risk allocation for authentication
C) to combat the uncertainty surrounding electronic banking
D) to control losses in the event of fraud

Question 28

With which of the following is the expression "an assignee can have no better rights than an assignor" synonymous in law?

A) unscrupulous financiers and assignees that sell substandard services
B) an assignee's right is subject to contractual obligations
C) an assignee's independent problems with quality and performance
D) the buyer's nearly absolute obligation to pay the assignee

Question 29

Which of the following international rules deals with, among other things, the obligations of the parties, consequences for technical problems, and damages?

A) Electronic Funds Transfer and Electronic Banking Code
B) FINTRAC Financial Transactions and Reports Analysis Code
C) UNCITRAL Model Law on International Credit Transfers
D) ITRMC Identity Theft and Related Misconduct Code

Question 30

In circumstances where a bank has been left with liability for a forged cheque, why should every party accepting that cheque have verified the authenticity of the endorsements on it?

A) The bank will deduct the value of the worthless cheque from any endorser's account.
B) A verification agreement will entitle the bank to recover assets of endorsers.
C) Without a special endorsement, collection may be a problem.
D) All prior endorsers risk the bank's recovery efforts.

Question 31

Which of the following would strongly support a refusal to honour payment to a holder in due course?

A) performance of contractual obligations
B) substandard goods
C) quantity of purchased goods
D) document alteration

Question 32

Which of the following would most strongly support the reluctance of banks to honour cheques without verification of the various endorsements appearing on a cheque?

A) the ability to report discrepancies within a reasonable time
B) the absence of a verification agreement
C) the inability to recover advanced funds on an invalid cheque
D) the banker's responsibility to know his customer's signature

Question 33

Kellie went to her bank to obtain a certified cheque for $35 000 cash needed to close her house purchase. Kellie endorsed a $20 000 cheque that her mother gave her and requested that the remaining $15 000 be withdrawn from her savings account. Kellie requested that the certified cheque be made payable to "Sheps & Shaps LLP in trust." What types of endorsements were made?

A) restrictive endorsement; certified endorsement
B) endorsement in blank; special endorsement
C) certified endorsement; special endorsement
D) endorsement in blank; restrictive endorsement

Question 34

Which of the following is synonymous, in legal terms, with the concept that liability for payment of a negotiable instrument is independent of the original debtor-creditor relationship?

A) A negotiable instrument has a life of its own.
B) Each cheque is valuable evidence of contractual obligations.
C) There is always good reason for liability to be borne by the other party.
D) It is convenient and dependable for commerce.

Question 35

Which of the following creates the legal uncertainty surrounding electronic banking?

A) Potential for forgery and fraud are changed and expanded.
B) Existing legislation is irrelevant in a paperless environment.
C) The bank is responsible for electronic failures.
D) It increases potential for transmission failures and system crashes.

Question 36

Marina is transferring a cheque to Scott by endorsing his name and her signature to the instrument. What is the legal name for this type of endorsement?

A) special endorsement
B) direct endorsement
C) blank endorsement
D) restrictive endorsement

Question 37

What form of electronic transaction involves a contract between the issuer and the user and a contract between the issuer and the merchant?

A) PayPal transaction
B) credit card transaction
C) money card transaction
D) smart card transaction

Question 38

What party is subject to claims arising from an original contract of sale?

A) an assignee of non-commercial debt
B) a holder in due course
C) a holder of a consumer note
D) a holder of a negotiable instrument

Question 39

Which of the following distinguishes a cheque from an Internet transaction?

A) Electronic transfers are instantaneous.
B) A cheque leaves a paper trail.
C) A cheque increases efficiency.
D) Verification is absent.

Question 40

Kellie's date of possession for the home she recently purchased is October 1. Her lawyer instructed her to provide the cash to close by way of a certified cheque in the amount of $35 000, payable to "Sheps & Shaps LLP in trust," by September 29. Why did Kellie's lawyer require the payment of these funds in this manner?

A) It prevents the drawee from requesting a stop payment on the cheque.
B) A cheque is a self-contained obligation, independent of any outside circumstances.
C) The major risk involved with cheques relates to the financial health of the drawee.
D) Risk is eliminated, as the payment of funds from bank reserves is guaranteed.

Question 41

The banks duty to honour cheques and repay deposits is an express obligation imposed by the federal Bank Act.

Question 42

When a commercial retailer accepts a cheque as payment from one of its customers, the retailer becomes the payee and the customer is the drawer.

Question 43

International services offered by Canadian banks include letters of credit, cross-border transfers, and accounts in different currencies.

Question 44

With respect to the party bearing the risk where payment of goods is made by cheque, the risk is borne largely by the payment system.

Question 45

A cheque is a written promise to pay a specified amount to another person.

Question 46

Individuals who conduct contractual business with banks need to appreciate the importance of the contract and become familiar with their basic rights and obligations, and they should understand that not only is the contract written largely to protect the bank but also their bargaining power is very limited.

Question 47

Retailers embraced debit card use by consumers because the transfer of payment of goods is immediate and the risk is borne largely by the card provider.

Question 48

One of the difficulties presented by the instantaneous nature of electronic transactions is that, while efficiency is greatly improved, the transfers are irrevocable.

Question 49

A written contract that contains an unconditional promise or order to pay a specified sum on demand or on a specific date to a specific individual or bearer is legally known as a bill of exchange.

Question 50

Businesses commonly use restrictive covenants, such as "for deposit only," to ensure that the bank is instructed to deposit each cheque endorsed in a like manner into a particular account.

Question 51

The risk associated with a retailer accepting payment for goods in cash is that, while payment is immediate, the money may be counterfeit.

Question 52

In situations where the bank fails to detect forged signatures and the customer does not immediately notice that the forged cheques have been cashed from its account, the courts will look to the bank-customer agreement to determine liability. If there is none, the common law rules apply.

Question 53

A promissory note is a written order to a bank to pay money to a specified person.

Question 54

A retailer who has made a substantial sale to an individual who paid cash need not be concerned whether or not the monies it received are the proceeds of a crime.

Question 55

The contract that specifies the rights and obligations of a bank and a customer is known as the operation of account agreement.

Question 56

A cheque endorsed in blank may be cashed by whoever possesses it because, with this type of endorsement, the bank will consider that the signature is complete.

Question 57

A stop payment means that a bank's customer cancels its instructions to pay a particular cheque and orders the bank to refuse payment when that cheque is presented.

Question 58

A written order to a person directing that a specific amount be paid to another individual is commonly described as a negotiable instrument.

Question 59

In practical and legal terms, the focus is shifting to electronic banking, which includes a growing range and variety of transactions that previously required less formal documentation.

Question 60

Banks have become financial marketplaces, offering services in cash management, investment advice, and business financing as a result of regulatory changes and decisions by banks to broaden their range of services.

Question 61

Describe the essence of the requirements that must be present for an instrument to become negotiable without the need to investigate its validity through reference to circumstances of the instrument's creation or to other documents.

Question 62

Describe the various models for electronic cashless transactions.

Question 63

Identify the additional duties implied on the bank with respect to the banking contract by common law and banking practice.

Question 64

The acceptance of cheques for payment creates risk for the businesses that accepts them. The use of cheques for payment also creates risks for businesses paying for services or supplies. What are these risks?

Question 65

In the case of SNS Industrial Products Limited v. Bank of Montreal, 2010 ONCA 500, the Ontario Court of Appeal the bank failed to detect a forged signature on cheques drawn on a client's account, with the result that $186 488 was fraudulently taken from its customer's account over a three-year period. Who was responsible for detecting the forgeries, the customer or the bank, and why?

Question 66

Discuss the various aspects of the evolution of credit cards.

Question 67

List the electronic options offered by banks to their customers that were noted in the text.

Question 68

Identify the essential point for a creator of a cheque, and briefly discuss what is required in order for the bank to honour the cheque with respect to a payee or holder in due course.

Question 69

Briefly discuss the legislative amendment that applied to consumer notes and its ramifications.

Question 70

Discuss the purpose of the banking agreement.