Question 1

For a negotiable instrument to operate practically as a substitute for cash, it must be easily transferable and uncollectible.

Accepted Answer

A) True 
 B)False  False

Question 2

If an instrument is payable within a definite period of time after being presented for payment, the maker or drawee is under no obligation to pay until that time.

Accepted Answer

A) True 
 B)False  True

Question 3

Bon signs a promissory note for $12,500 in favor of Car Loans Inc. The note specifies payment by a certain date and includes an option to pay early. This note is

Accepted Answer

A) negotiable. 
B) nonnegotiable, because the date for payment is uncertain. 
C) nonnegotiable, because the option violates negotiability requirements. 
D) nonnegotiable, because the note need not be paid until the specified date. 
A) negotiable. 
B) nonnegotiable, because the date for payment is uncertain. 
C) nonnegotiable, because the option violates negotiability requirements. 
D) nonnegotiable, because the note need not be paid until the specified date. D

Question 4

To be negotiable, an instrument must condition its terms on the occurrence or nonoccurrence of some other event or agreement.

Accepted Answer

A) True 
 B)False

Question 5

Yun writes an instrument that states it is "payable to Zho Ltd." In fact, "Zho Ltd." does not exist. The instrument is

Accepted Answer

A) negotiable. 
B) nonnegotiable, because it does not state that it is payable to order. 
C) nonnegotiable, because it is payable to a nonexistent organization. 
D) nonnegotiable, because it cannot be transferred by indorsement. 
A) negotiable. 
B) nonnegotiable, because it does not state that it is payable to order. 
C) nonnegotiable, because it is payable to a nonexistent organization. 
D) nonnegotiable, because it cannot be transferred by indorsement.

Question 6

An instrument that orders the drawee to pay a certain sum of money, usually to a third-party payee, is a draft .

Accepted Answer

A) True 
 B)False

Question 7

Sport Souvenir LLC orders a gross of printed shirts from T-Shirt Company. To finance the purchase, the buyer signs a note to pay the seller from the funds paid to the buyer on the sale of the shirts at a certain event. This note is nonnegotiable because

Accepted Answer

A) the note is not a three-party instrument, such as a draft. 
B) payment is to be made from a fund that does not yet exist. 
C) the instrument does not contain an express promise to pay. 
D) the note appears not to state a rate of interest. 
A) the note is not a three-party instrument, such as a draft. 
B) payment is to be made from a fund that does not yet exist. 
C) the instrument does not contain an express promise to pay. 
D) the note appears not to state a rate of interest.

Question 8

Oren signs an instrument payable to the order of Pay-Out Loans Inc. "on or before" June 15. This instrument is

Accepted Answer

A) negotiable. 
B) nonnegotiable, because the maker can move up the payment date. 
C) nonnegotiable, because moving up the payment date is optional. 
D) nonnegotiable, because the exact payment date cannot be determined from the face of the instrument. 
A) negotiable. 
B) nonnegotiable, because the maker can move up the payment date. 
C) nonnegotiable, because moving up the payment date is optional. 
D) nonnegotiable, because the exact payment date cannot be determined from the face of the instrument.

Question 9

If an instrument does not specify a time for payment and the instrument must be paid on presentment, it is not negotiable.

Accepted Answer

A) True 
 B)False

Question 10

For a drawee to be obligated to honor a time draft, the drawee must be obligated to the drawer by

Accepted Answer

A) a stated time in the future. 
B) an international trade agreement. 
C) a commercial money market contract. 
D) an account agreement or a debtor-creditor relationship. 
A) a stated time in the future. 
B) an international trade agreement. 
C) a commercial money market contract. 
D) an account agreement or a debtor-creditor relationship.

Question 11

A trade acceptance is created when, as part of a deal to buy wheat from Xi, Yang signs a draft ordering the buyer to pay for the wheat within ninety days.

Accepted Answer

A) True 
 B)False

Question 12

To be negotiable, if an instrument is not payable on demand, it must be payable at a definite time.

Accepted Answer

A) True 
 B)False

Question 13

Motor Sales Inc. signs an instrument that promises to pay National Parts Company a certain price, with interest, for a shipment of auto parts. It is necessary to know when the instrument is due in order to

Accepted Answer

A) determine the value of the instrument. 
B) calculate when a statute of limitations may apply. 
C) know when the interest will accrue. 
D) all of the choices. 
A) determine the value of the instrument. 
B) calculate when a statute of limitations may apply. 
C) know when the interest will accrue. 
D) all of the choices.

Question 14

Jaime signs an instrument using a "J" with a swirl around it. With this mark for a signature, the instrument is

Accepted Answer

A) negotiable. 
B) nonnegotiable, because an initial does not state the signer's name. 
C) nonnegotiable, because an initial is not a signature. 
D) nonnegotiable, because a simple initial implies a lack of binding intent. 
A) negotiable. 
B) nonnegotiable, because an initial does not state the signer's name. 
C) nonnegotiable, because an initial is not a signature. 
D) nonnegotiable, because a simple initial implies a lack of binding intent.

Question 15

No drafts other than checks may be used in commercial transactions.

Accepted Answer

A) True 
 B)False

Question 16

Juice Company signs an instrument that states it is being executed "as per a contract for the sale of a case of oranges dated May 1." This instrument is

Accepted Answer

A) negotiable. 
B) nonnegotiable, because banks cannot easily process commodities. 
C) nonnegotiable, because it includes the specific date of a contract. 
D) nonnegotiable, because it refers to an express contract. 
A) negotiable. 
B) nonnegotiable, because banks cannot easily process commodities. 
C) nonnegotiable, because it includes the specific date of a contract. 
D) nonnegotiable, because it refers to an express contract.

Question 17

Businesses use the commercial money market for short-term borrowing.

Accepted Answer

A) True 
 B)False

Question 18

Commonly used in international trade, a draft that orders a buyer's bank to pay is a cashier's check.

Accepted Answer

A) True 
 B)False

Question 19

Luc signs a promissory note for $2,500 in favor of Metro College. The note is undated but specifies that it is "payable one month after date." This note is

Accepted Answer

A) negotiable. 
B) nonnegotiable, because one month is not a reasonable time. 
C) nonnegotiable, because there is no option to pay early. 
D) nonnegotiable, because the maturity date cannot be determined from the face of the instrument. 
A) negotiable. 
B) nonnegotiable, because one month is not a reasonable time. 
C) nonnegotiable, because there is no option to pay early. 
D) nonnegotiable, because the maturity date cannot be determined from the face of the instrument.

Question 20

For a drawee to be obligated to honor an order to pay, the drawee must be obligated to the drawer.

Accepted Answer

A) True 
 B)False

Exam 25: Negotiable Instruments

For a negotiable instrument to operate practically as a substitute for cash, it must be easily transferable and uncollectible.

If an instrument is payable within a definite period of time after being presented for payment, the maker or drawee is under no obligation to pay until that time.

Bon signs a promissory note for $12,500 in favor of Car Loans Inc. The note specifies payment by a certain date and includes an option to pay early. This note is

To be negotiable, an instrument must condition its terms on the occurrence or nonoccurrence of some other event or agreement.

Yun writes an instrument that states it is "payable to Zho Ltd." In fact, "Zho Ltd." does not exist. The instrument is

An instrument that orders the drawee to pay a certain sum of money, usually to a third-party payee, is a draft .

Sport Souvenir LLC orders a gross of printed shirts from T-Shirt Company. To finance the purchase, the buyer signs a note to pay the seller from the funds paid to the buyer on the sale of the shirts at a certain event. This note is nonnegotiable because

Oren signs an instrument payable to the order of Pay-Out Loans Inc. "on or before" June 15. This instrument is

If an instrument does not specify a time for payment and the instrument must be paid on presentment, it is not negotiable.

For a drawee to be obligated to honor a time draft, the drawee must be obligated to the drawer by

A trade acceptance is created when, as part of a deal to buy wheat from Xi, Yang signs a draft ordering the buyer to pay for the wheat within ninety days.

To be negotiable, if an instrument is not payable on demand, it must be payable at a definite time.

Motor Sales Inc. signs an instrument that promises to pay National Parts Company a certain price, with interest, for a shipment of auto parts. It is necessary to know when the instrument is due in order to

Jaime signs an instrument using a "J" with a swirl around it. With this mark for a signature, the instrument is

No drafts other than checks may be used in commercial transactions.

Juice Company signs an instrument that states it is being executed "as per a contract for the sale of a case of oranges dated May 1." This instrument is

Businesses use the commercial money market for short-term borrowing.

Commonly used in international trade, a draft that orders a buyer's bank to pay is a cashier's check.

Luc signs a promissory note for $2,500 in favor of Metro College. The note is undated but specifies that it is "payable one month after date." This note is

For a drawee to be obligated to honor an order to pay, the drawee must be obligated to the drawer.

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