Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

This is known as the Drawer's Liability and is governed by the Uniform Commercial Code (UCC). The drawer is responsible for ensuring that there are sufficient funds in the account to honor the check. If the check is dishonored due to insufficient funds, the drawer can be held liable in a civil suit by the holder of the check.

Question 3

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

Accepted Answer

When a customer deposits cash into a checking account, it is considered an asset for the customer and a liability for the bank, as the bank owes the customer the deposited amount. Therefore, the customer is not a debtor, but rather a creditor to the bank.

Question 4

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

Accepted Answer

A bank is obligated to pay an uncertified check presented within six months from its date, according to the Uniform Commercial Code. After that time, the check may be considered stale-dated and the bank may no longer be obligated to honor it.

Question 5

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

Accepted Answer

The answer of Any failure of a bank to honor...

Question 6

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.

Accepted Answer

Only the account holder or an authorized signer has the authority to place a stop payment order on a check.

Question 7

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

Accepted Answer

The answer of A customer can stop payment on a...

Question 8

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

Accepted Answer

The answer of A written stop payment order is only...

Question 9

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

Accepted Answer

The answer of A forged signature is effective as the...

Question 10

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

Accepted Answer

A certified check has been verified by the bank and guaranteed for payment.

Question 11

A check that is presented for payment more than six months from its date is a stale check.

Accepted Answer

A check presented for payment more than six months from its date is considered stale and may not be honored by the bank.

Question 12

When a bank draws a check on itself, the check is called a cashier's check.

Accepted Answer

A cashier's check is a type of check issued by a bank, drawn on the bank's own funds and signed by a cashier or teller.

Question 13

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.

Accepted Answer

If the customer can prove that the bank was negligent, they can escape liability for failing to notify the bank of forged or altered checks. However, if the customer was also found to be negligent in handling their account and preventing the fraud, they may still be held liable.

Question 14

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.

Accepted Answer

This is known as the "fundamental rule" of banking. A bank may not honor a check for payment if the account does not have sufficient funds to cover the amount of the check. Otherwise, the bank may be held liable for the amount of the check if it bounces or is returned for non-sufficient funds (NSF).

Question 15

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

Accepted Answer

When a customer writes a check on their account, they are authorizing the bank to act as their agent and withdraw funds from their account to pay the recipient of the check. This creates an agency relationship between the customer and the bank.

Question 16

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

Accepted Answer

The relationship between a bank and its customer is a contractual one, where the bank has certain rights and duties, and so does the customer. These rights and duties are defined in the terms and conditions of the contract between the bank and the customer.

Question 17

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

Accepted Answer

The answer of The death of a customer immediately revokes...

Question 18

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

Accepted Answer

The incompetence of a customer does not revoke a bank's authority to pay an item, unless it is specifically outlined in the account agreement or there is a court order. The bank has a duty to act in good faith and use reasonable care in processing transactions.

Question 19

The Uniform Commercial Code regulates checks.

Accepted Answer

The Uniform Commercial Code regulates various commercial transactions, including checks.

Question 20

A check is a special type of draft.

Accepted Answer

A check is a type of draft, specifically a type of demand draft, which is payable on demand by the bank on which it is drawn.

Quiz 20: Banking in the Digital Age