Question 1. 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.
A) draft
B) promissory note
C) certificate of deposit
D) lease
Question 2. Notes cannot be named after the security that underlies the note.
A) True
B) False
Question 3. 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) True
B) False
Question 4. Mike deposited $100,000 in a bank and procured a certificate of deposit on it, payable to himself, and for repayment in 5 years with a 5 percent interest rate. A year after that, Mike borrows $25,000 from Jill, and gives 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 mutually agreed that Mike could repay in monthly payments, as mentioned it in the note.
What kind of promissory note has Jill and Mike decided on?
A) a time note
B) a bearer's note
C) a mortgage note
D) an installment note
Question 5. Which of the following is true about a trade acceptance?
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 6. A promissory note is a two-party transaction.
A) True
B) False
Question 7. Which one of the following is a similarity between bearer paper and order paper?
A) both require a specific payee to be named
B) both require indorsements to be considered negotiable
C) both require delivery to be considered negotiable
D) both can be claimed by whoever presents the instrument for payment
Question 8. An instrument that is refused payment when presented for payment is called a(n) ________.
A) blank instrument
B) restrictive instrument
C) demand instrument
D) dishonored instrument
Question 9. Which order paper when indorsed becomes a bearer paper?
A) unqualified indorsement
B) black indorsement
C) special indorsement
D) special qualified indorsement
Question 10. A qualified indorsement protects subsequent indorsers from liability.
A) True
B) False
Question 11. A(n) ________ is a signature and other directions written by or on behalf of the holder somewhere on an instrument.
A) recommendation
B) assignment
C) indorsement
D) reference
Question 12. An indorsement that purports to prohibit further negotiation of an instrument does not destroy the negotiability.
A) True
B) False
Question 13. Liability on a negotiable instrument that is imposed on a party only when the party primarily liable on the instrument defaults and fails to pay the instrument when due is referred to as ________.
A) secondary liability
B) unqualified liability
C) fringe liability
D) warranty liability
Question 14. A qualified indorser cannot disclaim transfer warranties.
A) True
B) False
Question 15. Martha draws a check payable to the order of Stella. Stella indorses the check to Karen. But Leslie steals the check from Karen, forges Karen's indorsement, and cashes the check at a liquor store.
Who is liable to the check?
A) the liquor store
B) Martha
C) Stella
D) Leslie
Question 16. Sylvester, acting as a representative agent for Jerry, signs a negotiable instrument with the signature-Sylvester, by Jerry, agent. What kind of liability does Sylvester have for this type of signature?
A) He is not liable to the instrument.
B) He liable to the payee.
C) He is liable to Jerry.
D) He is liable to the HDC of the instrument.
Question 17. What is transfer of an instrument?
A) the issuance of the instrument
B) the presentment for payment of the instrument
C) the passage of the instrument other than issuance and presentment
D) the cancellation of the instrument
Question 18. Which of the following is a characteristic of a presentment warranty on an instrument presented for payment?
A) The transferor has no knowledge of any insolvency.
B) The transferor has good title to the instrument.
C) No defenses of any party are good against the transferor.
D) The instrument has not been materially altered.
Question 19. A checking account customer owes a duty to examine the monthly statements of account promptly and with reasonable care to determine whether any payment was not authorized because of alteration of a check or a forged signature.
A) True
B) False
Question 20. According to the Electronic Funds Transfer Act and Regulation E adopted by the Federal Reserve Board, a bank can send unsolicited EFTS debit cards to a consumer only if the cards are not valid for use.
A) True
B) False
Question 21. How is a cashier's check different from an ordinary check?
A) Cashier's checks can be postdated, but ordinary checks cannot be postdated.
B) Unlike ordinary checks, cashier's checks do not require the purchaser to hold a checking account at that bank.
C) Unlike ordinary checks, cashier's checks are cancellable negotiable instruments upon issue.
D) Cashier's checks are three-party checks, while ordinary checks involve only two parties.
Question 22. The Federal Deposit Insurance Corporation was created under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
A) True
B) False
Question 23. The payee of a check can indorse it to a third person by replacing his name on the check with that of the third party.
A) True
B) False
Question 24. A check is finally paid when the payer bank fails to dishonor the check within certain statutory time periods.
A) True
B) False
Question 25. A check that has been outstanding for more than ________ is considered stale.
A) six months
B) one year
C) three months
D) nine months