Question 1

Which of the following is not one of the general purposes of negotiable instruments?

Accepted Answer

A)  to operate as a substitute for money 
B)  to be a record-keeping device 
C)  to provide flexible remedies for the non-breaching party in the event of a breach 
D)  to facilitate the extension of credit 
A)  to operate as a substitute for money 
B)  to be a record-keeping device 
C)  to provide flexible remedies for the non-breaching party in the event of a breach 
D)  to facilitate the extension of credit

Question 2

The revised Article 3 of the UCC replaced the words "Commercial Paper" with "Negotiable Instruments."

Accepted Answer

A) True 
 B)False

Question 3

Negotiable instruments may not act as a substitute for money.

Accepted Answer

A) True 
 B)False

Question 4

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. 
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.

Question 5

Identify the following instrument,identify the role of each party,and identify the characteristics of the instrument.
To: Morgan Associates Date: May 7,2003
Pay to the order of Henry H.Higgins,
One thousand and 00/100 Dollars,on June 7,2003.
Mareena Kaluchi
Mareena Kaluchi

Accepted Answer

This is a time draft,payable at a defini

Question 6

Negotiable instruments serve as a record-keeping device.

Accepted Answer

A) True 
 B)False

Question 7

Is the following instrument negotiable?"I promise to pay to the order of Mary Atkins the sum of $500 plus interest at the legal rate,on January 3,2003.The interest rate shall be 15 percent per year after January 3,2003.Further,I will pay the costs of collection if legal action is necessary to collect this amount.Dated this January 3,2001.(Signed)Colleen Smith."

Accepted Answer

A)  Yes; this is a negotiable instrument. 
B)  No; there is not an unconditional promise or order to pay. 
C)  No; interest at the legal rates does not constitute a fixed amount. 
D)  No; the different interest rate after default destroys negotiability. 
E)  No; the additional promise to pay collection costs destroys negotiability. 
A)  Yes; this is a negotiable instrument. 
B)  No; there is not an unconditional promise or order to pay. 
C)  No; interest at the legal rates does not constitute a fixed amount. 
D)  No; the different interest rate after default destroys negotiability. 
E)  No; the additional promise to pay collection costs destroys negotiability.

Question 8

To be unconditional,a promise to pay cannot refer to another document.

Accepted Answer

A) True 
 B)False

Question 9

Sandy signs a negotiable instrument that orders Sally to pay $1,000 to the order of Pat on May 4,2001.What type of instrument is this?

Accepted Answer

A)  promissory note 
B)  time draft 
C)  check 
D)  sight draft 
E)  money order 
A)  promissory note 
B)  time draft 
C)  check 
D)  sight draft 
E)  money order

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

A check is a form of draft that is drawn on a bank.

Accepted Answer

A) True 
 B)False

Question 12

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 payable at a specific time and the drawee is a bank. 
D)  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 payable at a specific time and the drawee is a bank. 
D)  There are no separate requirements; the requirements for a draft and a check are the same.

Question 13

Checks normally are three-party instruments.

Accepted Answer

A) True 
 B)False

Question 14

Jane owes Bob $500.Bob requests that Jane sign a document,so Jane signs the following document: "I owe Bob $500.(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

Question 15

The signature of the drawer or maker of a negotiable instrument must be the drawer or maker's full legal name.

Accepted Answer

A) True 
 B)False

Question 16

The essence of the fixed amount requirement is that a holder of an instrument can calculate the payment required from the face of the instrument.

Accepted Answer

A) True 
 B)False

Question 17

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 18

An instrument that is payable "to the order of bearer" is:

Accepted Answer

A)  order paper 
B)  bearer paper 
C)  nonnegotiable because of ambiguity 
D)  nonnegotiable because of a condition 
A)  order paper 
B)  bearer paper 
C)  nonnegotiable because of ambiguity 
D)  nonnegotiable because of a condition

Question 19

All negotiable instruments can be classified into which two general categories?

Accepted Answer

A)  checks and drafts 
B)  checks and notes 
C)  notes and certificates of deposit 
D)  notes and drafts 
A)  checks and drafts 
B)  checks and notes 
C)  notes and certificates of deposit 
D)  notes and drafts

Question 20

An acceleration clause allows the date of maturity of an instrument to be extended to some time in the future.

Accepted Answer

A) True 
 B)False

Exam 22: Creation of Negotiable Instruments

Which of the following is not one of the general purposes of negotiable instruments?

The revised Article 3 of the UCC replaced the words "Commercial Paper" with "Negotiable Instruments."

Negotiable instruments may not act as a substitute for money.

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

Identify the following instrument,identify the role of each party,and identify the characteristics of the instrument. To: Morgan Associates Date: May 7,2003 Pay to the order of Henry H.Higgins, One thousand and 00/100 Dollars,on June 7,2003. Mareena Kaluchi Mareena Kaluchi

Negotiable instruments serve as a record-keeping device.

To be unconditional,a promise to pay cannot refer to another document.

Sandy signs a negotiable instrument that orders Sally to pay $1,000 to the order of Pat on May 4,2001.What type of instrument is this?

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

A check is a form of draft that is drawn on a bank.

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

Checks normally are three-party instruments.

Jane owes Bob $500.Bob requests that Jane sign a document,so Jane signs the following document: "I owe Bob $500.(Signed)Jane." This document is:

The signature of the drawer or maker of a negotiable instrument must be the drawer or maker's full legal name.

The essence of the fixed amount requirement is that a holder of an instrument can calculate the payment required from the face of the instrument.

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.

An instrument that is payable "to the order of bearer" is:

All negotiable instruments can be classified into which two general categories?

An acceleration clause allows the date of maturity of an instrument to be extended to some time in the future.

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