Question 1

Instruments that are payable on demand are called order instruments.

Accepted Answer

A) True 
 B)False  False

Question 2

Trade names or assumed names cannot be used for signing negotiable instruments.

Accepted Answer

A) True 
 B)False  False

Question 3

Roger, a certified 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 lawn 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.
-Which of the following is true for the validity of the new promissory note made by Roger?

Accepted Answer

A) It must contain interest on the old principal to become a valid instrument. 
B) It must contain a specific date or time to be considered valid. 
C) It is a nonnegotiable instrument. 
D) It is a negotiable instrument if Jax accepts it. 
A) It must contain interest on the old principal to become a valid instrument. 
B) It must contain a specific date or time to be considered valid. 
C) It is a nonnegotiable instrument. 
D) It is a negotiable instrument if Jax accepts it. C

Question 4

An acceleration clause permits the maker to pay the amount due prior to the due date of the instrument.

Accepted Answer

A) True 
 B)False

Question 5

A promissory note is a two-party transaction.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is a fundamental requirement for a negotiable instrument?

Accepted Answer

A) that it must be supplemented with interest upon payment 
B) that it must be secured with collateral 
C) that it must contain a drawer, drawee, and a payee 
D) that it must be in a permanent state 
A) that it must be supplemented with interest upon payment 
B) that it must be secured with collateral 
C) that it must contain a drawer, drawee, and a payee 
D) that it must be in a permanent state

Question 7

The UCC signature requirement indicates that a negotiable instrument must be signed by the drawer if it is a certificate of deposit.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) collateral note 
B) mortgage note 
C) demand note 
D) installment note 
A) collateral note 
B) mortgage note 
C) demand note 
D) installment note

Question 9

A ________ is a distinct form of draft drawn on a financial institution and payable on demand.

Accepted Answer

A) promissory note 
B) check 
C) deed 
D) letter of credit 
A) promissory note 
B) check 
C) deed 
D) letter of credit

Question 10

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 11

Which of the following is true about 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 12

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 13

________ are a special form of contract that satisfies the requirements established by Revised Article 3 of the 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 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

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 ________.

Accepted Answer

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

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

What are nonnegotiable contracts?

Accepted Answer

If a promise or an order to pay does not

Question 18

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

Accepted Answer

A) bill of exchange 
B) check 
C) certificate of deposit 
D) promissory note 
A) bill of exchange 
B) check 
C) certificate of deposit 
D) promissory note

Question 19

A two-party negotiable instrument that is a special form of note created when a person deposits money at a financial institution in exchange for the institution's promise to pay back the amount of the deposit plus an agreed-upon rate of interest upon the expiration of a set time period agreed upon by the parties is known as a ________.

Accepted Answer

A) collateral note 
B) check 
C) certificate of deposit 
D) bill of exchange 
A) collateral note 
B) check 
C) certificate of deposit 
D) bill of exchange

Question 20

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

Accepted Answer

A) check 
B) time draft 
C) trade acceptance 
D) demand draft 
A) check 
B) time draft 
C) trade acceptance 
D) demand draft

Exam 22: Creation of Negotiable Instruments

Instruments that are payable on demand are called order instruments.

Trade names or assumed names cannot be used for signing negotiable instruments.

An acceleration clause permits the maker to pay the amount due prior to the due date of the instrument.

A promissory note is a two-party transaction.

Which of the following is a fundamental requirement for a negotiable instrument?

The UCC signature requirement indicates that a negotiable instrument must be signed by the drawer if it is a certificate of deposit.

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

A ________ is a distinct form of draft drawn on a financial institution and payable on demand.

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

Which of the following is true about a trade acceptance?

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

________ are a special form of contract that satisfies the requirements established by Revised Article 3 of the UCC.

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 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 ________.

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

What are nonnegotiable contracts?

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

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

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