Question 1

If Ben Stewart has a checking account at Green National Bank:

Accepted Answer

The relationship between a bank and its customer is primarily based on the contractual agreement they have, which outlines the terms and conditions of the account.

Question 2

A check is drawn on Jones Bank by Tamara and made payable to the order of Chris. Chris indorses it "for deposit only, Acct. 2275, Chris" and gives it to Plainer Bank for deposit. Plainer stamps "pay any bank" on the check along with its indorsement and negotiates it to Stone Bank. Stone Bank simply stamps "Stone Bank" and negotiates it to SmallTown Bank. If SmallTown wants to negotiate it to the electric company to pay its bill, can it?

Accepted Answer

The restrictive indorsement "for deposit only" and the subsequent "pay any bank" indorsement lock the check into the bank collection system, preventing negotiation to non-bank entities like the electric company.

Question 3

A check drawn on a bank is an order to pay a sum of money and an authorization to charge the amount to the drawer's account. The drawer may countermand this order by which of the following?

Accepted Answer

A stop payment order is the only choice listed that can countermand the order to pay a sum of money and the authorization to charge the amount to the drawer's account. A canceled check only serves as proof of payment already made, a banker's acceptance is a type of financial instrument used in international trade, and a time draft is a type of payment method where payment is made at a later date.

Question 4

A system for electronic funds transfers (EFT) in which machines are located in a merchant's store and are activated by the consumer's identification card and code is:

Accepted Answer

POS (Point of Sale) systems are electronic systems located in a merchant's store, allowing for electronic funds transfers (EFT) when activated by a consumer's identification card and personal identification number (PIN) or code.

Question 5

If you lose your wallet along with your ATM card, your liability is

Accepted Answer

Your liability is limited to $50 if you notify the bank within two days of realizing your ATM card is lost or stolen.

Question 6

A payment order for a wholesale funds transfer must:

Accepted Answer

A payment order for a wholesale funds transfer must contain no condition to payment other than the time of payment, ensuring clarity and certainty in the transaction process.

Question 7

Which of the following is true with regard to the federal Electronic Funds Transfer Act?

Accepted Answer

The Electronic Funds Transfer Act limits a customer's liability for unauthorized electronic fund transfers to $50 if the consumer notifies the financial institution within two days after learning of the loss or theft.

Question 8

Which of the following is true about UCC Article 4A?

Accepted Answer

UCC Article 4A specifically governs wholesale funds transfers, including large interbank transfers, rather than consumer or retail transactions. It does not overlap with the Electronic Funds Transfer Act, which primarily covers consumer transactions. Article 4A does not cover credit transactions, and it allows parties to vary their rights and obligations by agreement to a certain extent, provided such variations are not disallowed by the Article itself.

Question 9

If Harriet makes out a check for $127.50 when she has only $10 in her account, her bank:

Accepted Answer

The bank has the discretion to refuse payment due to insufficient funds, pay the check and charge Harriet an overdraft fee, or take other actions as per their policies and the agreements with the account holder. Therefore, they may choose any of these options.

Question 10

What is the effect of a payor bank's dishonor of a check?

Accepted Answer

When a payor bank dishonors a check, all of these actions occur: the check is returned, provisional credits are reversed, and the customer who deposited the check must cover the item and seek recovery from the drawer or indorsers.

Question 11

Sue deposits in her account at First Bank a $50 check drawn on Valley Bank. First Bank transfers the check to Second Bank, which in turn forwards it to Valley Bank, which pays the item. Valley Bank is the:

Accepted Answer

Valley Bank is both the payor bank, as it pays out the funds for the check, and the drawee bank, as it is the bank upon which the check is drawn.

Question 12

Which warranties does a collecting bank give?

Accepted Answer

A collecting bank gives several warranties under the Uniform Commercial Code, including entitlement to enforce the item, genuine signatures, no material alteration, no defense good against it, and no knowledge of insolvency of the maker, acceptor, or drawer of an unaccepted draft.

Question 13

Which of the following is correct with respect to a bank customer's duty to discover and report unauthorized signatures?

Accepted Answer

A bank customer is required to exercise reasonable care and promptness to examine their bank statements and report any unauthorized signatures or alterations to the bank.

Question 14

Which of the following is NOT a duty of a collecting bank in the collection process?

Accepted Answer

A collecting bank's primary responsibilities include exercising due care in handling items for collection, acting promptly, and respecting restrictive endorsements. However, honoring a valid stop payment order is a duty of the payor bank, not the collecting bank.

Question 15

What are a payor bank's rights to subrogation upon an improper payment of an instrument?

Accepted Answer

The answer of What are a payor bank's rights to...

Question 16

A preauthorized electronic transfer from a consumer's account:

Accepted Answer

Preauthorized electronic transfers must be authorized in writing before the transfer is made, as per regulations governing electronic fund transfers.

Question 17

On April 6, Ellen sends a check out to a magazine publisher and then discovers she has already paid for the subscription. She calls her bank and orders that the bank not make payment. That order will be good until:

Accepted Answer

An oral stop-payment order on a check is binding on the bank for 14 days and can be extended for six months if confirmed in writing within that period. Therefore, since Ellen placed the order on April 6, a written confirmation would extend the order until October 6.

Question 18

Helen deposits a $50 check in her account at First Bank at 4:00 on Friday. The bank is closed on Saturday and Sunday, but opens again on Monday. The midnight deadline for First Bank would be:

Accepted Answer

The midnight deadline for First Bank would be midnight Tuesday because banks typically process transactions on the next business day. Since the bank is closed on Saturday and Sunday, the deposit made on Friday at 4:00 PM would be processed on Monday, and the funds would typically be available by midnight of the next business day, which is Tuesday.

Question 19

An objective of the Check 21 Act is to:

Accepted Answer

The Check 21 Act primarily aims to make the check collection process faster by allowing banks to handle checks electronically, reducing the need for physical paper checks.

Question 20

When a payor bank gets an item payable from a customer's account with insufficient funds, the bank may:

Accepted Answer

Both options A and B are possible actions a bank can take when presented with an item for payment from an account with insufficient funds. The bank may choose to honor the payment, creating an overdraft, or it may refuse the payment and return the item.

Quiz 27: Bank Deposits Collections and Funds Transfers