Question 1

A(n)________ is type of instrument that is payable to anyone in physical possession of the instrument and presents it for payment when it is due.

Accepted Answer

A) certificate of deposit 
B) order instrument 
C) bearer instrument 
D) check 
A) certificate of deposit 
B) order instrument 
C) bearer instrument 
D) check

Question 2

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. In which of the following ways will the prepayment clause help Jill?

Accepted Answer

A) It helps Jill to shorten the repayment period when she wishes. 
B) It helps Jill acquire the whole amount in one payment in case Mike defaults. 
C) It allows Mike to repay earlier than the stipulated time. 
D) It obligates Mike to pay interest on the money he defaults. 
A) It helps Jill to shorten the repayment period when she wishes. 
B) It helps Jill acquire the whole amount in one payment in case Mike defaults. 
C) It allows Mike to repay earlier than the stipulated time. 
D) It obligates Mike to pay interest on the money he defaults.

Question 3

A check is a type of promissory note.

Accepted Answer

A) True 
 B)False

Question 4

The primary benefit of a negotiable instrument is that it can be used as a substitute for money.

Accepted Answer

A) True 
 B)False

Question 5

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. If Mike defaults on the payment even after one year,which of the following is true of the foreclosure options Jill has with the certificate of deposit Mike gave her?

Accepted Answer

A) The bank has to pay her only after the five-year period mentioned in the CD. 
B) The bank does not have to pay her for the CD. 
C) The bank has to pay her the difference of $75,000. 
D) The bank has to pay her $25,000 with one year interest of 5 percent on demand. 
A) The bank has to pay her only after the five-year period mentioned in the CD. 
B) The bank does not have to pay her for the CD. 
C) The bank has to pay her the difference of $75,000. 
D) The bank has to pay her $25,000 with one year interest of 5 percent on demand.

Question 6

Which of the following must a promissory note contain to make it negotiable?

Accepted Answer

A) an acknowledgement of debt 
B) an implied promise to pay 
C) an unconditional promise to pay 
D) a promise to negotiate 
A) an acknowledgement of debt 
B) an implied promise to pay 
C) an unconditional promise to pay 
D) a promise to negotiate

Question 7

The ________ requirement of negotiable instruments says that negotiable instruments must be able to be easily transported between areas.

Accepted Answer

A) portability 
B) permanence 
C) signature 
D) transparency 
A) portability 
B) permanence 
C) signature 
D) transparency

Question 8

Which of the following statements is true of a negotiable instrument?

Accepted Answer

A) It should be signed by the payee. 
B) It need not state a fixed amount of money. 
C) It should not require any undertaking other than the payment of money. 
D) It can be either written or oral. 
A) It should be signed by the payee. 
B) It need not state a fixed amount of money. 
C) It should not require any undertaking other than the payment of money. 
D) It can be either written or oral.

Question 9

A maker or drawer can appoint an agent to sign a negotiable instrument on his or her behalf.

Accepted Answer

A) True 
 B)False

Question 10

________ are special forms of contracts that satisfy the requirements established by Article 3 of the Uniform Commercial Code (UCC).

Accepted Answer

A) Banknotes 
B) Negotiable instruments 
C) Letters of credit 
D) Stocks 
A) Banknotes 
B) Negotiable instruments 
C) Letters of credit 
D) Stocks

Question 11

How does an authorized representative's signature work for negotiable instruments?

Accepted Answer

A maker or drawer can appoint an agent t

Question 12

Which of the following is true of a trade acceptance?

Accepted Answer

A) The buyer is the payee. 
B) The seller is both the drawer and payee. 
C) The draft is countersigned by the drawee's bank. 
D) The draft is only as good as the drawer's creditworthiness. 
A) The buyer is the payee. 
B) The seller is both the drawer and payee. 
C) The draft is countersigned by the drawee's bank. 
D) The draft is only as good as the drawer's creditworthiness.

Question 13

What is a similarity between a demand draft and a trade acceptance?

Accepted Answer

A) both are examples of sight drafts 
B) both require credit to be extended to the buyer 
C) both have the drawer to be the payee as well 
D) both are considered two-party transactions 
A) both are examples of sight drafts 
B) both require credit to be extended to the buyer 
C) both have the drawer to be the payee as well 
D) both are considered two-party transactions

Question 14

A ________ is a three-party instrument that is an unconditional written order by one party that orders a second party to pay money to a third party.

Accepted Answer

A) draft 
B) promissory note 
C) certificate of deposit 
D) lease 
A) draft 
B) promissory note 
C) certificate of deposit 
D) lease

Question 15

________ of the Uniform Commercial Code (UCC)is a model code that establishes rules for the creation of,transfer of,enforcement of,and liability on negotiable instruments.

Accepted Answer

A) Article 5 
B) Article 3 
C) Article 2 
D) Article 2A 
A) Article 5 
B) Article 3 
C) Article 2 
D) Article 2A

Question 16

A promise or an order becomes conditional if it refers to a different writing for a description of rights to collateral,prepayment,or acceleration.

Accepted Answer

A) True 
 B)False

Question 17

A prepayment clause allows the payee or holder to accelerate payment of the principal amount of an instrument.

Accepted Answer

A) True 
 B)False

Question 18

A(n)________ is a clause in an instrument that permits the maker to pay the amount due prior to the date of the instrument.

Accepted Answer

A) prepayment clause 
B) acceleration clause 
C) extension clause 
D) forestallment clause 
A) prepayment clause 
B) acceleration clause 
C) extension clause 
D) forestallment clause

Question 19

A promise or order is only considered negotiable if ________.

Accepted Answer

A) the promise or order to pay is unconditional 
B) it states that the promise or order is subject to or governed by another writing 
C) the rights to the promise or order are stated in another writing 
D) an express condition to payment is mentioned 
A) the promise or order to pay is unconditional 
B) it states that the promise or order is subject to or governed by another writing 
C) the rights to the promise or order are stated in another writing 
D) an express condition to payment is mentioned

Question 20

Which of the following is true of a draft?

Accepted Answer

A) It is always a two-party transaction. 
B) It is an unconditional written promise to pay. 
C) It is a note created upon deposition of money. 
D) It is a pay to order transaction. 
A) It is always a two-party transaction. 
B) It is an unconditional written promise to pay. 
C) It is a note created upon deposition of money. 
D) It is a pay to order transaction.

Exam 22: Creation of Negotiable Instruments

A(n)________ is type of instrument that is payable to anyone in physical possession of the instrument and presents it for payment when it is due.

A check is a type of promissory note.

The primary benefit of a negotiable instrument is that it can be used as a substitute for money.

Which of the following must a promissory note contain to make it negotiable?

The ________ requirement of negotiable instruments says that negotiable instruments must be able to be easily transported between areas.

Which of the following statements is true of a negotiable instrument?

A maker or drawer can appoint an agent to sign a negotiable instrument on his or her behalf.

________ are special forms of contracts that satisfy the requirements established by Article 3 of the Uniform Commercial Code (UCC).

How does an authorized representative's signature work for negotiable instruments?

Which of the following is true of a trade acceptance?

What is a similarity between a demand draft and a trade acceptance?

A ________ is a three-party instrument that is an unconditional written order by one party that orders a second party to pay money to a third party.

________ of the Uniform Commercial Code (UCC)is a model code that establishes rules for the creation of,transfer of,enforcement of,and liability on negotiable instruments.

A promise or an order becomes conditional if it refers to a different writing for a description of rights to collateral,prepayment,or acceleration.

A prepayment clause allows the payee or holder to accelerate payment of the principal amount of an instrument.

A(n)________ is a clause in an instrument that permits the maker to pay the amount due prior to the date of the instrument.

A promise or order is only considered negotiable if ________.

Which of the following is true of a draft?

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