Question 1

The signature of the drawer or maker of a negotiable instrument can appear anywhere on the face of the document.

Accepted Answer

A) True 
 B)False

Question 2

An indorsement is the signature of the maker,drawer,or an acceptor.

Accepted Answer

A) True 
 B)False

Question 3

A party who makes a promise to pay is the drawer of a note.

Accepted Answer

A) True 
 B)False

Question 4

To be a negotiable instrument under the requirements of UCC 3-104,a writing must contain either an unconditional order to pay or an unconditional promise to pay a fixed amount of money on demand or at a definite time.

Accepted Answer

A) True 
 B)False

Question 5

Order paper that is indorsed in blank becomes bearer paper.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following correctly describes a certificate of deposit?

Accepted Answer

A)  It is a draft that is payable by a bank. 
B)  It is not considered to be a negotiable instrument. 
C)  It is a note that is payable on demand. 
D)  It is a note where the depositor is the payee. 
E)  It is a money order where the drawee is a bank. 
A)  It is a draft that is payable by a bank. 
B)  It is not considered to be a negotiable instrument. 
C)  It is a note that is payable on demand. 
D)  It is a note where the depositor is the payee. 
E)  It is a money order where the drawee is a bank.

Question 7

Which of the following is one of the general kinds of indorsements?

Accepted Answer

A)  special 
B)  ratifying 
C)  permanent 
D)  nominal 
E)  negotiated 
A)  special 
B)  ratifying 
C)  permanent 
D)  nominal 
E)  negotiated

Question 8

"Pay to John Smith,without recourse,(signed)Michael R.Harmon" is what type of indorsement?

Accepted Answer

A)  a blank, restrictive indorsement 
B)  a restrictive, unqualified indorsement 
C)  a special, qualified indorsement 
D)  a blank, qualified indorsement 
E)  a special, unqualified indorsement 
A)  a blank, restrictive indorsement 
B)  a restrictive, unqualified indorsement 
C)  a special, qualified indorsement 
D)  a blank, qualified indorsement 
E)  a special, unqualified indorsement

Question 9

Regardless of whether the instrument involved is order paper or bearer paper,the proper method of negotiation is the same.

Accepted Answer

A) True 
 B)False

Question 10

The drawee must be obligated to pay the drawer money before the drawer can order the drawee to pay the money to a third party.

Accepted Answer

A) True 
 B)False

Question 11

A negotiable instrument is negotiated when it is first issued as well as each time it transfers from party to party.

Accepted Answer

A) True 
 B)False

Question 12

Simply signing your name as your indorsement of a negotiable instrument:

Accepted Answer

A)  changes an order instrument into a bearer instrument. 
B)  changes a bearer instrument into an order instrument. 
C)  changes a draft into a note. 
D)  makes the instrument non-negotiable except by a bank. 
E)  removes all warranties and promises as an indorser. 
A)  changes an order instrument into a bearer instrument. 
B)  changes a bearer instrument into an order instrument. 
C)  changes a draft into a note. 
D)  makes the instrument non-negotiable except by a bank. 
E)  removes all warranties and promises as an indorser.

Question 13

All checks are three-party instruments,but not all three-party instruments are checks.

Accepted Answer

A) True 
 B)False

Question 14

Stanley Smith is an agent of the XYZ Company and signs a check as an authorized agent of the company.If he signs the check,"Stanley Smith,Agent",he will have no liability and XYZ will have full liability if the check were dishonored.

Accepted Answer

A) True 
 B)False

Question 15

A(n)________ takes an instrument free of many defenses that could be asserted against the original payee.

Accepted Answer

A)  holder in due course 
B)  holder through negotiation 
C)  bona fide purchaser 
D)  good faith purchaser 
E)  assignee 
A)  holder in due course 
B)  holder through negotiation 
C)  bona fide purchaser 
D)  good faith purchaser 
E)  assignee

Question 16

Which of the following will result in an instrument being nonnegotiable?

Accepted Answer

A)  It contains a variable interest rate such that the amount of interest that will be due cannot be determined at the time the note is created. 
B)  It states that the payment of funds will come from the proceeds of a specific contract. 
C)  It states that the entire balance will become immediately due in the event of a default by the maker. 
D)  It states that the rights of the payee to receive payment are subject to the terms of a separate agreement. 
E)  It is secured by collateral, and the agreement about the collateral is in a separate agreement. 
A)  It contains a variable interest rate such that the amount of interest that will be due cannot be determined at the time the note is created. 
B)  It states that the payment of funds will come from the proceeds of a specific contract. 
C)  It states that the entire balance will become immediately due in the event of a default by the maker. 
D)  It states that the rights of the payee to receive payment are subject to the terms of a separate agreement. 
E)  It is secured by collateral, and the agreement about the collateral is in a separate agreement.

Question 17

Both a note and a draft may be payable at a designated future time or on demand.

Accepted Answer

A) True 
 B)False

Question 18

A promissory note is a negotiable instrument that the payee can freely transfer to other parties.

Accepted Answer

A) True 
 B)False

Question 19

An instrument does not have to be payable with interest,but if it is,the amount of interest being charged must be expressed as either a "prime" or a "sub-prime" rate.

Accepted Answer

A) True 
 B)False

Question 20

Jane owes Bob $500.Bob requests that Jane sign a document,so Jane signs the following document: "I owe Bob $500 and will pay on 8/8/12.(Signed)Jane." This document is:

Accepted Answer

A)  a draft. 
B)  a check. 
C)  a note. 
D)  a certificate of deposit. 
E)  not a negotiable instrument. 
A)  a draft. 
B)  a check. 
C)  a note. 
D)  a certificate of deposit. 
E)  not a negotiable instrument.

Exam 20: Creation and Transfer of Negotiable Instruments

The signature of the drawer or maker of a negotiable instrument can appear anywhere on the face of the document.

An indorsement is the signature of the maker,drawer,or an acceptor.

A party who makes a promise to pay is the drawer of a note.

To be a negotiable instrument under the requirements of UCC 3-104,a writing must contain either an unconditional order to pay or an unconditional promise to pay a fixed amount of money on demand or at a definite time.

Order paper that is indorsed in blank becomes bearer paper.

Which of the following correctly describes a certificate of deposit?

Which of the following is one of the general kinds of indorsements?

"Pay to John Smith,without recourse,(signed)Michael R.Harmon" is what type of indorsement?

Regardless of whether the instrument involved is order paper or bearer paper,the proper method of negotiation is the same.

The drawee must be obligated to pay the drawer money before the drawer can order the drawee to pay the money to a third party.

A negotiable instrument is negotiated when it is first issued as well as each time it transfers from party to party.

Simply signing your name as your indorsement of a negotiable instrument:

All checks are three-party instruments,but not all three-party instruments are checks.

Stanley Smith is an agent of the XYZ Company and signs a check as an authorized agent of the company.If he signs the check,"Stanley Smith,Agent",he will have no liability and XYZ will have full liability if the check were dishonored.

A(n)________ takes an instrument free of many defenses that could be asserted against the original payee.

Which of the following will result in an instrument being nonnegotiable?

Both a note and a draft may be payable at a designated future time or on demand.

A promissory note is a negotiable instrument that the payee can freely transfer to other parties.

An instrument does not have to be payable with interest,but if it is,the amount of interest being charged must be expressed as either a "prime" or a "sub-prime" rate.

Jane owes Bob $500.Bob requests that Jane sign a document,so Jane signs the following document: "I owe Bob $500 and will pay on 8/8/12.(Signed)Jane." This document is:

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