Deck 25: Banks, E-Money, and Financial Reform

Question 1

The payer bank cannot charge the customer's account if it pays a check over the forged signature.

Answer 1

True

Question 2

If the drawer does not have enough money in his or her account when a properly payable check is presented for payment,the payer bank is obligated to honor the check and create an overdraft in the drawer's account.

Answer 2

False

Question 3

The drawee is the party to whom a check is written.

Answer 3

False

Question 4

The Uniform Commercial Code places the risk of loss of an incomplete item on the drawee.

Question 5

An oral order to stop payment on a check is binding on the payer bank for a period of 14 calendar days.

Question 6

A check that has been outstanding for more than three months is considered stale,and the bank is under no obligation to pay it.

Question 7

A creditor-debtor relationship between a customer and a bank is created if the customer writes a check against his or her account.

Question 8

A stop-payment order can be issued either by the drawer or the payee.

Question 9

It is not necessary to have a checking account at the issuing bank to purchase a cashier's check.

Question 10

A presentment warranty is a guarantee in which each prior transferor warrants that a check has not been altered.

Question 11

When the drawee bank receives a properly drawn and payable check,the bank is under a duty to honor the check and charge (debit)the drawer's account the amount of the check if there are sufficient funds in the customer's checking account at the bank.

Question 12

The payee of a check can indorse it to a third person by replacing his name on the check with that of the third party.

Question 13

The drawer's failure to report a forged or altered check to the bank within six months of receiving the bank statement and canceled checks containing it relieves the bank of any liability for paying the instrument.

Question 14

Checks are the most common form of negotiable instruments used in the United States.

Question 15

A cashier's check is a two-party check.

Question 16

Certified checks become stale after two years from the date of their issue.

Question 17

If a payer bank pays the altered amount on an altered check,it can recover the altered amount minus the original tenor from the party who presented the altered check for payment.

Question 18

If a bank does not honor a check when there are sufficient funds in the drawer's account to pay a properly payable check,it is liable for wrongful dishonor.

Question 19

Under UCC guidelines,to require a bank to abide by a postdated check,the drawer must give separate written notice to the bank,describing the check with reasonable certainty and notifying the bank not to pay the check until the date on the check.

Question 20

The Federal Currency Reporting Law requires financial institutions and other entities to file a Currency Transaction Report (CTR)with the Internal Revenue Service (IRS)in the event of the detection of suspected criminal activity by bank customers involving a financial transaction of $1,000 or more in funds.

Question 21

The Dodd-Frank Wall Street Reform and Consumer Protection Act grants powers to the Federal Reserve to monitor and regulate institutions it supervises,including bank holding companies,savings bank holding companies,and affiliates of holding companies.

Question 22

Article 4A of the Uniform Commercial Code governs commercial and consumer wire transfers.

Question 23

Which of the following is one of the provisions of Article 4 of the Uniform Commercial Code?

A)establishing the requirements for negotiable instruments,such as checks
B)establishing the rules and principles that regulate bank deposit procedures for checking accounts offered by commercial banks
C)stipulating the rules that regulate the creation and collection of and liability for wire transfers
D)reviewing and revising guidelines for ownership of securities by investors

Question 24

In banking terminology,a creditor-debtor relationship is created when ________.

A)a customer fails to maintain adequate funds in his bank checking account
B)a customer makes a deposit into a bank
C)a customer writes a check against his account
D)a customer writes a postdated check drawn on his bank

Question 25

A(n)________ is an order by the drawer to the drawee bank to pay a specified sum of money from the drawer's checking account to the named payee (or holder).

A)ordinary check
B)promissory note
C)bill of exchange
D)credit memo

Question 26

According to the Electronic Funds Transfer Act and Regulation E adopted by the Federal Reserve Board,a bank can send unsolicited EFTS debit cards to a consumer only if the cards are not valid for use.

Question 27

Article 4A of the Uniform Commercial Code establishes the ________.

A)requirements for negotiable instruments,such as checks
B)rules and principles that regulate bank deposit and collection procedures for checking accounts offered by commercial banks
C)rules that regulate the creation and collection of and liability for wire transfers
D)guidelines for ownership of securities by investors

Question 28

The check collection process,which may involve multiple banks,is governed by Revised Article 3 of the UCC.

Question 29

The Federal Deposit Insurance Corporation was created under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Question 30

Except for the collecting bank,each bank in the collection process,including the payer bank,must take proper action on an "on them" check prior to its midnight deadline.

Question 31

A checking account customer owes a duty to examine the monthly statements of account promptly and with reasonable care to determine whether any payment was not authorized because of alteration of a check or a forged signature.

Question 32

When a customer deposits a check into a checking account for collection,the depository bank does not have to pay the customer the amount of the check until the check "clears."

Question 33

A deposit of cash to an account becomes available for withdrawal at the opening of the next banking day following the deposit.

Question 34

If a checking account customer fails to report a series of forgeries or alterations by the same wrongdoer on the same account within 30 days from receiving the monthly statement of account,then the bank is discharged from liability on all similar forged or altered checks after that date and prior to notification.

Question 35

Article 3 of the Uniform Commercial Code establishes the ________.

A)requirements for negotiable instruments,such as checks
B)rules that regulate bank deposit procedures for checking accounts
C)rules that regulate the creation and collection of and liability for wire transfers
D)guidelines for ownership of securities by investors

Question 36

If a customer notifies the issuing bank within two days of learning that his or her debit card has been lost or stolen,the customer is liable for only $100 for unauthorized use.

Question 37

Banks are obligated under the provisions of Article 4 of the UCC to send canceled checks along with the monthly statements of account to their checking account customers.

Question 38

A check is finally paid when the payer bank fails to dishonor the check within certain statutory time periods.

Question 39

If the drawer and the payee of a check have accounts at the same bank,the check is called an "on them" item when it is presented for payment by the payee.

Question 40

If there are major failures of several large banks or many small banks,and the FDIC insurance fund is insufficient to cover all of the depositors' losses,then the U.S.government will pay the depositors the money owed by the FDIC.

Question 41

Timothy is owed $1,000 by Greg,who gives him a check to repay the amount.When Timothy presents it at Greg's bank five months later,however,the bank refuses to pay the check.The bank was willing to act in good faith,but is not liable for the dishonor of the check.Which of the following,if true,would explain the dishonor of the check by Greg's bank?

A)Timothy filled in his name as the payee on the check as Greg had forgotten to do so.
B)Greg had not filled in the amount,so Timothy duly wrote $1,000 on the check before he presented it to the bank.
C)Greg had issued a stop-payment order on the check immediately after giving it to Timothy.
D)Greg had postdated the check four months from the date of giving the check to Timothy.

Question 42

Mrs.Dawson wrote a check to Kevin for $50 on New Year's Day for clearing the snow from her driveway on Christmas Eve.However,when Kevin tries to cash the check at Mrs.Dawson's bank,he is told that the check is stale.Which of the following is the most likely reason for Mrs.Dawson's check being dishonored by the bank?

A)Mrs.Dawson did not have enough funds in her checking account.
B)Mrs.Dawson had dated the check for the previous year instead of the current year.
C)Mrs.Dawson had not identified Kevin as the payee while writing out the check.
D)Mrs.Dawson had given Kevin a check which was dated more than six months ahead of the date of issue.

Question 43

The bank where the payee or holder of a check has an account is known as the ________.

A)payer bank
B)depository bank
C)intermediary bank
D)private bank

Question 44

Which of the following is implied when a bank certifies a check?

A)The bank agrees to accept the check when it is presented for payment.
B)The bank cashes the check only if the holder himself presents it for payment.
C)The bank withholds payment on the check until the drawer authorizes payment.
D)The bank holds the check as guarantee for repayment of a loan taken by a customer.

Question 45

A check that has been outstanding for more than ________ is considered stale.

A)six months
B)one year
C)three months
D)nine months

Question 46

Francis Jeffers purchased a cashier's check in the amount of $5,000 from Northern Star Bank.The check was made payable to Kyle Naughton and was delivered to him.Twelve months later,the Northern Star Bank branch manager informed Jeffers that the cashier's check was still outstanding.Jeffers subsequently signed a form,requesting that payment be stopped and a replacement check be issued.Northern Star Bank issued a replacement check to Jeffers.Eight months later,Naughton deposited the original cashier's check in his bank,which was paid by Northern Star Bank.Northern Star Bank requested that Jeffers repay the bank $5,000.When he refused,Northern Star Bank sued Jeffers to recover this amount and the court awarded Northern Star Bank damages amounting to $5,500. Which of the following,had it happened,would have resulted in the court ruling in Jeffers' favor?

A)Jeffers cashed the replacement check before Naughton had presented the original check at his bank.
B)Jeffers paid Naughton the $5,000 in cash after obtaining the replacement check from Northern Star Bank.
C)Jeffers indemnified Northern Star Bank for potential damages arising from the issue of the replacement check.
D)Jeffers renewed the stop-payment order on the original check at the end of six months.

Question 47

In which of the following cases is an overdraft created in a drawer's account?

A)when a properly payable check issued by the drawer is presented for payment,but the drawer's account does not have sufficient funds in it
B)when the drawer issues a stop-payment order for a check,but the bank still goes ahead and pays the holder of the check
C)when the bank pays the holder of a check in which the amount payable is altered to indicate a higher amount than was originally intended
D)when the payee presents the check after six months from the date of the check and the bank still pays the holder

Question 48

In which of the following cases is a bank obliged to file a Currency Transaction Report (CTR)with the Internal Revenue Service?

A)The bank receives instructions from a customer to certify an ordinary check worth $10,000 issued in a foreigner's name.
B)The bank receives an ordinary check worth $13,000 payable to a customer's checking account.
C)A customer deposits $20,000 through a cashier's check in his checking account.
D)A customer issues stop-payment instructions on a check worth $15,000 issued to a payee.

Question 49

How is a cashier's check different from an ordinary check?

A)Cashier's checks can be postdated,but ordinary checks cannot be postdated.
B)Unlike ordinary checks,cashier's checks do not require the purchaser to hold a checking account at that bank.
C)Unlike ordinary checks,cashier's checks are cancellable negotiable instruments upon issue.
D)Cashier's checks are three-party checks,while ordinary checks involve only two parties.

Question 50

A check that has been modified without authorization and thus modifies the legal obligation of a party is known as a(n)________.

A)stale check
B)incomplete check
C)altered check
D)forged check

Question 51

When a bank pays the holder of a properly drawn check,it is said to have ________ the check.

A)certified
B)indorsed
C)honored
D)collected

Question 52

Which of the following is an accurate description of wrongful dishonor of a check?

A)A bank refuses to honor a properly payable check when there are sufficient funds in the drawer's account.
B)A bank refuses to honor a certified check when it is presented for payment more than a year from its date of issue.
C)A bank refuses to honor a check which has been outstanding for only a few days more than six months from the date of issue.
D)A bank refuses to honor an ordinary check when it believes that the payee has altered the amount on the check.

Question 53

Which of the following statements is true of certified checks?

A)Banks are obligated to certify checks that for amounts greater than $10,000.
B)Certified checks are payable at any time from the date they are issued.
C)A drawer can stop payment on a certified check if it is indorsed.
D)Banks can charge a fraction of the check value as a fee for certifying it.

Question 54

John writes out a check for $100 on his account at the Sacred Heart Bank to repay the $100 he owes Perry.He gives the check to Eliot and tells her to hand it over to Perry.However,Eliot loses the check before she can hand it to Perry.Later,John realizes that he had not written Perry's name on the lost check.According to the provisions of the UCC,on which of the following parties should the risk of loss of the check be placed?

A)Eliot
B)Perry
C)John
D)Sacred Heart Bank

Question 55

A person can purchase a(n)________ from a bank by paying the bank the amount of the check plus a fee for issuing the check.

A)indorsed check
B)ordinary check
C)blank check
D)cashier's check

Question 56

Jill Scott is an accountant with Cameron and Associates,a law firm in downtown Seattle.The firm maintains a checking account with Southern Rock Bank for its operating expenses.On the 10?? of every month,Jill gets an inventory report from the office manager listing the office supplies that are needed.Jill places the appropriate orders with Office Depot and writes them a check against the office's checking account.
In the above banking transaction,Cameron and Associates is the ________.

A)indorser
B)payee
C)drawer
D)holder

Question 57

George,John,Paul,Ringo,and Brian are five friends from Iowa.George owes John $100,John owes Paul $200,Paul owes Ringo $300,and Ringo owes Brian $400.John and Paul find a check belonging to George.John names himself as the payee on the check,fills in $200 as the amount,and forges George's signature on it.He indorses the check to Paul and asks him to consider his debt repaid,while keeping the knowledge of the forgery to himself.Paul,in turn,indorses the check to Ringo and pays Ringo the remaining $100 in cash.Predictably,Ringo indorses the check to Brian,who presents the check to George's bank and receives payment.Who among the following friends can the bank recover the money from,once the forgery is detected?

A)George
B)Paul
C)Brian
D)Ringo

Question 58

Raj receives a check for $100 from Sheldon.He signs the back of the check and turns it over to Leo to pay off the $100 he owed Leo.
In this case,Raj is the ________.

A)drawer
B)drawee
C)indorser
D)indorsee

Question 59

Jill Scott is an accountant with Cameron and Associates,a law firm in downtown Seattle.The firm maintains a checking account with Southern Rock Bank for its operating expenses.On the 10?? of every month,Jill gets an inventory report from the office manager listing the office supplies that are needed.Jill places the appropriate orders with Office Depot and writes them a check against the office's checking account.
Who is the drawee in this banking transaction?

A)Jill Scott
B)Office Depot
C)Cameron and Associates
D)Southern Rock Bank

Question 60

Raj receives a check for $100 from Sheldon.He signs the back of the check and turns it over to Leo to pay off the $100 he owed Leo.
The check is now said to be ________.

A)certified
B)indorsed
C)drawn
D)stale

Question 61

What are altered checks? What are the actions that a bank can take when it encounters a case of check alteration?

Question 62

What recommendations did the Dodd-Frank Wall Street Reform and Consumer Protection Act make to reform lending regulation?

Question 63

Which of the following describes the "deferred posting rule"?

A)Banks can fix an afternoon hour of 2:00 or later as a cutoff hour for the purpose of processing checks and deposits.
B)When a customer deposits a check for collection,the depository bank does not have to pay the customer until the check clears.
C)Banks have to mail their checking account customers monthly statements of their accounts and any canceled checks should accompany this statement.
D)A customer is liable for payment to his bank if he fails to report any unauthorized transactions within 30 days from the receipt of the account statement.

Question 64

The Pittsburgh Peelers are a professional soccer team playing in Major League Soccer.They recently approached Darth Water,a leading sports-drink manufacturer,to sponsor their team for the upcoming season.Darth Water agrees to sponsor the team for an amount of $1 million,to be paid in installments over the course of the season.Darth Water instructs its bank,Orange County Bank,to wire the funds to Pittsburgh Peelers' bank,the Jersey Shore Bank,with instructions to credit Pittsburgh Peelers' account.Which of the following parties is the originator of the wire transfer in the above case?

A)Pittsburgh Peelers
B)Jersey Shore Bank
C)Darth Water
D)Orange County Bank

Question 65

If there are major failures of several large banks or many small banks,and the FDIC insurance fund is insufficient to cover all of the depositors' losses,which of the following bodies is responsible for paying the depositors money owed by the FDIC?

A)the Federal Reserve System
B)the boards of the failed banks
C)the National Credit Union Administration
D)the U.S.government

Question 66

What responsibility do banks and checking account customers have with respect to examining bank statements?

Question 67

Which of the following regulatory agencies was set up under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act?

A)Federal Deposit Insurance Corporation
B)Bureau of Consumer Financial Protection
C)National Credit Union Administration
D)U)S.Securities and Exchange Commission

Question 68

Which of the following is one of the purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010?

A)monitoring the legitimacy of consumer and commercial wire transfers
B)establishing the reporting requirements for financial transactions,including off-balance-sheet transactions
C)regulating previously unregulated financial products and institutions
D)overseeing,inspecting,and disciplining accounting firms in their roles as auditors of public companies

Question 69

If a drawer and a payee or holder have accounts at different banks,the payer bank and depository bank are not the same bank.In this case,the check is called a(n)________.

A)non-negotiable instrument
B)presentment warranty
C)stale check
D)on them item

Question 70

The term ________ refers to the computer and electronic technology that makes it possible for banks to offer electronic payment and collection systems to bank customers.

A)electronic protocols application software (EPAS)
B)electronic funds transfer system (EFTS)
C)originating depository financial institution (ODFI)
D)open real-time currency application (ORCA)

Question 71

The ________ is a federal statute,enacted by the Congress in 2010,that reorganizes federal government supervision of the banking system,regulates previous unregulated financial products and institutions,and adds a new consumer protection agency to protect consumers from abusive lending and banking practices.

A)Dodd-Frank Wall Street Reform and Consumer Protection Act
B)Depository Institutions Deregulation and Monetary Control Act
C)Financial Institutions Reform,Recovery,and Enforcement Act
D)Riegle-Neal Interstate Banking and Branching Efficiency Act

Question 72

In which of the following cases is a bank considered liable for unauthorized payments?

A)The bank does not attach canceled checks to the monthly statements of account.
B)The bank does not provide images of paid checks online.
C)The bank destroys original copies of canceled checks not sent to customers after seven years from the date of the check.
D)The bank does not provide sufficient information on checks paid to customers in their monthly account statements.

Question 73

Which of the following is one of the principal wire payment systems in use in the United States?

A)the Electronic Payments Network
B)the Large Value Transfer System
C)the Clearing House Interbank Payments System (CHIPS)
D)the New York Currency Exchange

Question 74

Which of the following describes a situation in which a collecting bank gives credit to a check in the collection process prior to its final settlement?

A)presentment across a counter
B)indorsement of a check
C)certification of a check
D)provisional credit

Question 75

Write a brief note describing certified checks.

Question 76

Describe how a check can be indorsed.

Question 77

The ________ is a government agency that insures deposits at most banks and savings institutions in the United States.

A)Federal Deposit Insurance Corporation
B)Federal Reserve System
C)Resolution Trust Corporation
D)Bureau of Federal Credit Unions

Question 78

A check is finally paid when ________.

A)the depository bank credits the customer's account with an option to reverse the credit in case of dishonoring of the check
B)the payer bank fails to dishonor the check within certain statutory time periods
C)the drawer settles for the check while holding a right to revoke the settlement
D)the final bank in the collection process tentatively credits the account of the prior transferor

Question 79

Which of the following is one of the provisions of the Electronic Funds Transfer Act and Regulation E of the Federal Reserve Board?

A)A bank can send unsolicited EFTS debit cards to a consumer only if the cards are valid for use.
B)If a customer notifies the issuing bank of a stolen or lost debit card within two days of the loss,the customer's liability is limited to a maximum of $500.
C)A bank must provide annual statements of electronic funds transfers to customers who conduct such transactions in a given financial year.
D)Other than for a telephone transaction,a bank must provide a customer with a written receipt of a transaction made through a computer terminal.

Question 80

Instead of depositing an "on them" check for collection,a depositor can physically submit the check for payment at the payer bank.This is called ________.

A)provisional credit
B)indorsement of the check
C)presentment across the counter
D)final settlement