Question 1

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 B

Question 2

A ________ is an example of an order to pay.

Accepted Answer

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

Question 3

A customer who has a checking account at a financial institution,and writes a check,is the drawee of the check.

Accepted Answer

A) True 
 B)False  False

Question 4

A promise to pay engraved on a rock fulfills the permanency requirement of negotiable instruments and is considered as a valid instrument.

Accepted Answer

A) True 
 B)False

Question 5

When an indorser indorses an instrument in blank,it changes a(n)________.

Accepted Answer

A)  order instrument into a bearer instrument 
B)  bearer instrument into an order instrument 
C)  negotiable instrument into a nonnegotiable instrument 
D)  valid instrument into an invalid instrument 
A)  order instrument into a bearer instrument 
B)  bearer instrument into an order instrument 
C)  negotiable instrument into a nonnegotiable instrument 
D)  valid instrument into an invalid instrument

Question 6

Which of the following is true about 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 after payment of money. 
D)  It is payable on demand. 
A)  It is always a two-party transaction. 
B)  It is an unconditional written promise to pay. 
C)  It is a note created after payment of money. 
D)  It is payable on demand.

Question 7

A ________ indorsement disclaims or limits liability on an indorsement.

Accepted Answer

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

Question 8

Compare and contrast qualified and unqualified indorsements.

Accepted Answer

Generally,an indorsement is a promise by

Question 9

A promise by an indorser to pay the holder or any subsequent indorser the amount of the instrument if the maker,drawer,or acceptor defaults on it is known as a(n)________ indorsement.

Accepted Answer

A)  competent 
B)  promissory 
C)  unqualified 
D)  qualified 
A)  competent 
B)  promissory 
C)  unqualified 
D)  qualified

Question 10

Deborah executes an unconditional written agreement to pay $5,000 to Bill on or before February 15,2015.In this scenario,Deborah has drawn a ________.

Accepted Answer

A)  promissory note 
B)  draft 
C)  check 
D)  money order 
A)  promissory note 
B)  draft 
C)  check 
D)  money order

Question 11

Which of the following is true of a certificate of deposit?

Accepted Answer

A)  It is a promise to pay. 
B)  It is used to extend credit to a buyer. 
C)  It is a three-party instrument. 
D)  It is a savings account passbook. 
A)  It is a promise to pay. 
B)  It is used to extend credit to a buyer. 
C)  It is a three-party instrument. 
D)  It is a savings account passbook.

Question 12

A(n)________ is required to negotiate order paper,but not to negotiate bearer paper.

Accepted Answer

A)  security 
B)  collateral 
C)  indorsement 
D)  warranty 
A)  security 
B)  collateral 
C)  indorsement 
D)  warranty

Question 13

Which of the following is an example of an order paper?

Accepted Answer

A)  a check indorsed "pay to Josh" 
B)  a check payable to the order of Josh and indorsed in blank 
C)  a note payable to Josh and indorsed in blank 
D)  a note payable to bearer 
A)  a check indorsed "pay to Josh" 
B)  a check payable to the order of Josh and indorsed in blank 
C)  a note payable to Josh and indorsed in blank 
D)  a note payable to bearer

Question 14

The UCC requires that negotiable instruments be either payable to order or payable to bearer.

Accepted Answer

A) True 
 B)False

Question 15

A(n)________ makes negotiable instruments transferable to a third party.

Accepted Answer

A)  insurance 
B)  indorsement 
C)  accommodation 
D)  trade acceptance 
A)  insurance 
B)  indorsement 
C)  accommodation 
D)  trade acceptance

Question 16

To be negotiable,an instrument must contain a promise or an order to pay a fixed amount of money.

Accepted Answer

A) True 
 B)False

Question 17

A(n)________ permits the maker to pay the amount due prior to the due 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 18

Which of the following is true about a promissory note?

Accepted Answer

A)  It is always a three-party transaction. 
B)  It is a promise to pay. 
C)  The party who makes the promise is the lender. 
D)  The payee cannot transfer the note to a third party. 
A)  It is always a three-party transaction. 
B)  It is a promise to pay. 
C)  The party who makes the promise is the lender. 
D)  The payee cannot transfer the note to a third party.

Question 19

A promise or order is only considered negotiable if ________.

Accepted Answer

A)  the promise or order to pay is unconditional 
B)  it 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 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 when an indorsee's name is misspelled in a negotiable instrument?

Accepted Answer

A)  The instrument can be indorsed. 
B)  The instrument becomes invalid. 
C)  The instrument cannot be indorsed and must be executed again. 
D)  The instrument becomes nonnegotiable. 
A)  The instrument can be indorsed. 
B)  The instrument becomes invalid. 
C)  The instrument cannot be indorsed and must be executed again. 
D)  The instrument becomes nonnegotiable.

Exam 20: Creation and Transfer of Negotiable Instruments

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

A ________ is an example of an order to pay.

A customer who has a checking account at a financial institution,and writes a check,is the drawee of the check.

A promise to pay engraved on a rock fulfills the permanency requirement of negotiable instruments and is considered as a valid instrument.

When an indorser indorses an instrument in blank,it changes a(n)________.

Which of the following is true about a draft?

A ________ indorsement disclaims or limits liability on an indorsement.

Compare and contrast qualified and unqualified indorsements.

A promise by an indorser to pay the holder or any subsequent indorser the amount of the instrument if the maker,drawer,or acceptor defaults on it is known as a(n)________ indorsement.

Deborah executes an unconditional written agreement to pay $5,000 to Bill on or before February 15,2015.In this scenario,Deborah has drawn a ________.

Which of the following is true of a certificate of deposit?

A(n)________ is required to negotiate order paper,but not to negotiate bearer paper.

Which of the following is an example of an order paper?

The UCC requires that negotiable instruments be either payable to order or payable to bearer.

A(n)________ makes negotiable instruments transferable to a third party.

To be negotiable,an instrument must contain a promise or an order to pay a fixed amount of money.

A(n)________ permits the maker to pay the amount due prior to the due date of the instrument.

Which of the following is true about a promissory note?

A promise or order is only considered negotiable if ________.

Which of the following is true when an indorsee's name is misspelled in a negotiable instrument?

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