Question 1

Which of the following is true about drafts?

Accepted Answer

A)  Drafts are two-party paper. 
B)  A draft must have a bank as the drawee. 
C)  A draft contains an order to pay. 
D)  All drafts are payable on demand. 
E)  Drafts are a conditional written order. 
A)  Drafts are two-party paper. 
B)  A draft must have a bank as the drawee. 
C)  A draft contains an order to pay. 
D)  All drafts are payable on demand. 
E)  Drafts are a conditional written order.

Question 2

A certificate of deposit is a special form of note.

Accepted Answer

A) True 
 B)False

Question 3

Regarding a trade acceptance,the seller is both the drawer and the payee.

Accepted Answer

A) True 
 B)False

Question 4

The "maker" is a party to a note,but is not a party to a draft.

Accepted Answer

A) True 
 B)False

Question 5

If a promise or an order to pay does not meet one of the requirements of negotiability,it is subject to the "default" provisions of UCC Article 2.

Accepted Answer

A) True 
 B)False

Question 6

A note that requires the performance of services is negotiable so long as there is also a requirement for payment of a fixed amount of money.

Accepted Answer

A) True 
 B)False

Question 7

What characteristics are necessary for a draft to be a check?

Accepted Answer

A)  It contains an indorsement in blank. 
B)  It is payable on demand, and the drawee is a bank. 
C)  It is not an order to pay. 
D)  It is bearer paper. 
E)  There are no separate requirements; the requirements for a draft and a check are the same. 
A)  It contains an indorsement in blank. 
B)  It is payable on demand, and the drawee is a bank. 
C)  It is not an order to pay. 
D)  It is bearer paper. 
E)  There are no separate requirements; the requirements for a draft and a check are the same.

Question 8

Under Article 3 of the UCC,what is the effect of a note not stating a time for payment?

Accepted Answer

A)  The note is void and unenforceable due to vagueness. 
B)  The note is considered nonnegotiable, but might nonetheless be enforceable. 
C)  The note is considered a time instrument, with payment due at a reasonable time. 
D)  The note is considered a demand instrument, with payment due on demand. 
E)  The note is voidable by the maker. 
A)  The note is void and unenforceable due to vagueness. 
B)  The note is considered nonnegotiable, but might nonetheless be enforceable. 
C)  The note is considered a time instrument, with payment due at a reasonable time. 
D)  The note is considered a demand instrument, with payment due on demand. 
E)  The note is voidable by the maker.

Question 9

A certificate of deposit is called a "jumbo" CD when it is valued at:

Accepted Answer

A)  $10,000. 
B)  $25,000. 
C)  $50,000. 
D)  $75,000. 
E)  $100,000. 
A)  $10,000. 
B)  $25,000. 
C)  $50,000. 
D)  $75,000. 
E)  $100,000.

Question 10

An indorsement that says "without recourse" disclaims liability and protects that indorser and any future indorsers.

Accepted Answer

A) True 
 B)False

Question 11

A promissory note is an order to pay.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not a requirement of negotiability?

Accepted Answer

A)  The instrument must be in writing. 
B)  The instrument must be signed by the maker or drawer. 
C)  The instrument must state a fixed amount of money. 
D)  The instrument must contain an indorsement. 
E)  The instrument must contain an unconditional order or promise to pay. 
A)  The instrument must be in writing. 
B)  The instrument must be signed by the maker or drawer. 
C)  The instrument must state a fixed amount of money. 
D)  The instrument must contain an indorsement. 
E)  The instrument must contain an unconditional order or promise to pay.

Question 13

An instrument that is not payable to a specific payee or indorsee is ________.

Accepted Answer

A)  legally unenforceable 
B)  a void contract 
C)  a voidable contract 
D)  order paper 
E)  bearer paper 
A)  legally unenforceable 
B)  a void contract 
C)  a voidable contract 
D)  order paper 
E)  bearer paper

Question 14

A drawee is not liable to pay a draft until the drawee has accepted it.

Accepted Answer

A) True 
 B)False

Question 15

Josh is an authorized agent for the Dark Beer Corporation.He orders ingredients on behalf of the corporation and signs the check in payment for the ingredients solely by signing his name.In terms of liability for the amount owed on the check:

Accepted Answer

A)  Dark Beer is liable, but Josh has no liability because he is only an agent. 
B)  Josh is liable, but Dark Beer is not liable. 
C)  both Dark Beer and Josh are liable on the entire instrument. 
D)  neither Dark Beer nor Josh is liable. 
E)  both Dark Beer and Josh are liable, but each is liable for only 50% of the check. 
A)  Dark Beer is liable, but Josh has no liability because he is only an agent. 
B)  Josh is liable, but Dark Beer is not liable. 
C)  both Dark Beer and Josh are liable on the entire instrument. 
D)  neither Dark Beer nor Josh is liable. 
E)  both Dark Beer and Josh are liable, but each is liable for only 50% of the check.

Question 16

A certificate of deposit is a two-party instrument.

Accepted Answer

A) True 
 B)False

Question 17

Which type of indorsement prevents the indorser from having liability to later holders in the event that the instrument is not paid according to its terms?

Accepted Answer

A)  blank 
B)  restrictive 
C)  special 
D)  nominal 
E)  qualified 
A)  blank 
B)  restrictive 
C)  special 
D)  nominal 
E)  qualified

Question 18

The primary legal effect of being a qualified indorser is to eliminate the indorser's liability to pay an instrument if the maker,drawer or other indorser does not.

Accepted Answer

A) True 
 B)False

Question 19

A customer who has a checking account and writes a check is the maker.

Accepted Answer

A) True 
 B)False

Question 20

A negotiable instrument can be handwritten.

Accepted Answer

A) True 
 B)False

Exam 20: Creation and Transfer of Negotiable Instruments

Which of the following is true about drafts?

A certificate of deposit is a special form of note.

Regarding a trade acceptance,the seller is both the drawer and the payee.

The "maker" is a party to a note,but is not a party to a draft.

If a promise or an order to pay does not meet one of the requirements of negotiability,it is subject to the "default" provisions of UCC Article 2.

A note that requires the performance of services is negotiable so long as there is also a requirement for payment of a fixed amount of money.

What characteristics are necessary for a draft to be a check?

Under Article 3 of the UCC,what is the effect of a note not stating a time for payment?

A certificate of deposit is called a "jumbo" CD when it is valued at:

An indorsement that says "without recourse" disclaims liability and protects that indorser and any future indorsers.

A promissory note is an order to pay.

Which of the following is not a requirement of negotiability?

An instrument that is not payable to a specific payee or indorsee is ________.

A drawee is not liable to pay a draft until the drawee has accepted it.

Josh is an authorized agent for the Dark Beer Corporation.He orders ingredients on behalf of the corporation and signs the check in payment for the ingredients solely by signing his name.In terms of liability for the amount owed on the check:

A certificate of deposit is a two-party instrument.

Which type of indorsement prevents the indorser from having liability to later holders in the event that the instrument is not paid according to its terms?

The primary legal effect of being a qualified indorser is to eliminate the indorser's liability to pay an instrument if the maker,drawer or other indorser does not.

A customer who has a checking account and writes a check is the maker.

A negotiable instrument can be handwritten.

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