Exam 22: Creation of Negotiable Instruments

Which of the following is true of a promissory note?

If a promissory note is secured by a piece of real estate,then the note is called a(n)________.

In a draft transaction,the payee or the drawer is allowed to freely transfer drafts as a negotiable instrument to another party.

Explain the requirement for a fixed amount in negotiable instruments?

A ________ is a type of draft that is always paid at a future date.

A bill of exchange is a type of sight draft.

To be negotiable,a draft or check must contain the drawer's unconditional order to pay a payee.

Promissory notes are never payable on demand.

Roger,a lawyer,borrowed money from Jax to start a business.He gave a promissory note to Jax promising to pay the money back anytime within the next five years.But in order to accept the note,Jax demanded a security deposit.Roger gave the gold that he owned as security.Roger in turn demanded that a specific clause be added to the promissory note to allow faster repayment of the loan in case he inherited money within the next five years.But even after five years,Roger was unable to complete payment.He made a new promissory note promising to finish payment within the next year,and promised to provide free legal service to Jax for the next two years. What kind of promissory note did Jax secure from Roger for the original amount?

A ________ is a two-party negotiable instrument that is an unconditional written pledge by one party to pay money to another party.

Promises to pay and orders to pay must be unconditional in order to be negotiable.

Mike deposited $100,000 in a bank and procured a certificate of deposit on it,payable to himself,for repayment in five years with a five percent interest rate.A year after that,Mike borrowed $25,000 from Jill,and gave her a promissory note to repay it in one year.As collateral,Mike gave Jill the certificate of deposit and asked to put in a prepayment clause,to which Jill agreed.They agreed that Mike could repay in monthly payments,as mentioned in the note. What kind of promissory note have Jill and Mike decided on?

Security posted by a promissory note maker to the lender for repayment of money is known as collateral.

A sight draft that arises when a seller extends credit to a buyer with the sale of goods is known as a ________.

In order to be considered valid,a negotiable instrument need not state a fixed amount of money.

Which of the following is a characteristic of a check?

A clause in an instrument that allows the date of maturity of the instrument to be prolonged to sometime in the future is referred to as the ________.

A conditional promise is not a negotiable instrument.

In a certificate of deposit,the depositor is the payee.

Instruments that are payable upon an uncertain act or event are not negotiable.