Question 1

Commercially acceptable documents, such as notes, checks, and drafts, are used to transfer money from one person to another.

Accepted Answer

Commercially acceptable documents are indeed used to transfer money from one person to another. Notes, checks, and drafts are commonly used for this purpose.

Question 2

The purpose of the Electronic Funds Transfer Act of 1979 is to govern transfers among financial institutions or among businesses.

Accepted Answer

The Electronic Funds Transfer Act of 1979 was primarily established to protect consumers engaging in electronic fund transfers, including ATM transactions, direct deposits, and electronic bill payments, rather than governing transfers among financial institutions or businesses.

Question 3

Most states have statutes making a person who issues a check drawn on a bank in which he or she has no account guilty of the criminal offense of larceny.

Accepted Answer

Issuing a check without an account is considered a form of theft or fraud, and many states classify it as a criminal offense similar to larceny.

Question 4

Commercial paper differs from ordinary contracts because of the:
A) presumption of consideration and assignability.
B) ability to negotiate the commercial paper.
C) validity of the commercial paper.
D) ability to negotiate the contract.

Accepted Answer

Commercial paper is a short-term, unsecured promissory note that is issued by a corporation to raise funds. It is different from ordinary contracts because it is presumed to be supported by consideration and is assignable.

Question 5

A cashier's check is drawn against the depositor's own funds.

Accepted Answer

A cashier's check is drawn against the funds of the bank or financial institution, not against the depositor's own funds.

Question 6

The promise in a note, or the order in a check or draft, must be conditional.

Accepted Answer

The promise in a note or the order in a check or draft is unconditional, not conditional. This means the payment promised or ordered is not dependent on any conditions being met.

Question 7

Commercial paper includes checks that banks are ordered to pay, but not drafts in which a third party is ordered to pay.

Accepted Answer

Commercial paper includes drafts in which a third party is ordered to pay, in addition to checks that banks are ordered to pay.

Question 8

Forged checks are illegal, whereas raised checks are not.

Accepted Answer

Both forged checks and raised checks are illegal. Forging a check involves creating a completely false check, while raising a check involves altering a legitimate check by increasing the amount or changing the payee. Both actions are considered fraud and are illegal.

Question 9

Checks are sometimes payable on demand.

Accepted Answer

The answer of Checks are sometimes payable on demand....

Question 10

An item of commercial paper containing the key words of negotiability, such as "pay to the order of," or their equivalent, is a(n):
A) price quotation.
B) grade instrument.
C) order instrument.
D) bill of lading.

Accepted Answer

An order instrument is a type of negotiable instrument that includes the words "pay to the order of" or their equivalent, making it transferable by endorsement and delivery. Examples of order instruments include checks and promissory notes. A bill of lading is a document used in shipping and transportation, and a price quotation does not contain negotiability language. A grade instrument is not a recognized term in the context of negotiable instruments.

Question 11

The person who makes a promise is called a 'drawer'.

Accepted Answer

The person who makes a promise is called a 'promisor' or 'obligor', not a 'drawer'. A 'drawer' is typically the person who writes or drafts a bill of exchange or check.

Question 12

Commercial paper may be handwritten, printed, or written by any other means that will make a mark.

Accepted Answer

Commercial paper can be in any form that can make a mark, including handwritten or printed forms.

Question 13

A written order drawn on a bank by a depositor that requests the bank to pay, on demand and unconditionally, a definite sum of money to the bearer of the instrument or to the order of a specified person is called a:
A) price quotation.
B) promissory note.
C) check.
D) demand note.

Accepted Answer

A check is a written order drawn on a bank by a depositor that requests the bank to pay a definite sum of money to the bearer of the instrument or to the order of a specified person. A promissory note is a written promise to pay a certain amount of money on a specific date, while a demand note is a type of promissory note that is payable on demand. A price quotation is a document provided by a seller to a potential buyer, outlining the cost of goods or services.

Question 14

An instrument with an unconditional written promise to pay, or pay to the order of another party, a certain sum of money on demand or at a definite time is known as a:
A) garnishee order.
B) negotiable instrument.
C) stop-payment order.
D) restraining order.

Accepted Answer

A negotiable instrument is a type of legal document that guarantees payment of a specific amount of money upon demand or on a predetermined date. Examples of negotiable instruments include checks, promissory notes, and bills of exchange.

Question 15

When the amount of a check expressed in figures does not agree with the amount stated in words, the amount expressed in words is considered the true one.

Accepted Answer

This is known as the "legal amount" and takes precedence over the numerical amount if there is a discrepancy between the two.

Question 16

An instrument payable in a foreign currency is negotiable.

Accepted Answer

An instrument payable in a foreign currency, such as a check or a promissory note, can be negotiated just like any other negotiable instrument. The holder of the instrument can endorse it and transfer ownership to another party, who can then further negotiate it.

Question 17

The two basic types of commercial paper are promises to pay through notes and orders to pay through checks and drafts.

Accepted Answer

This statement is true. Commercial paper typically comes in the form of notes, which are promises to pay, or checks and drafts, which are orders to pay.

Question 18

A written note or letter in which one person promises to pay a certain amount of money to another at a definite time is known as a:
A) cashier's check.
B) promissory note.
C) certified check.
D) demand draft.

Accepted Answer

A promissory note is a written promise by one party to pay another party a specific sum of money at a specific time or on demand. A cashier's check is a check drawn on the bank's own funds and signed by a cashier or teller, whereas a certified check is a personal check that has been verified and guaranteed by the bank. A demand draft is a type of check that is guaranteed by the bank and drawn on the bank's own funds, but it is typically used for remote payments or transfers rather than in-person transactions.

Question 19

A person may not postdate a check for self-protection when some act is to be completed by the payee before the date of the check.

Accepted Answer

Postdating a check, where the date written on the check is later than the day the check is written, is a legal practice often used for various reasons, including ensuring an act is completed before the check can be cashed or deposited.

Question 20

A certified check is one that the bank has promised to pay when it is presented for payment.

Accepted Answer

A certified check is a check that has been guaranteed by the bank that the funds are available and will be paid out if and when the check is presented for payment.

Quiz 22: Introduction to Commercial Paper