Deck 29: Checks and Electronic Fund Transfers

Question 1

In India, unlike in the United States, money orders may be issued only by the post office.

Answer 1

True

Question 2

Which part of the UCC governs the transfer of checks between banks?

A) Article 1
B) Article 2
C) Article 3
D) Article 4
E) Article 5

Answer 2

D

Question 3

The depositary bank is sometimes the same as the collecting bank.

Answer 3

True

Question 4

A bank involved in the check collection process may only be classified as one type of bank during the entire process.

Question 5

The businesses community considers cashier checks to be the near equivalent of cash.

Question 6

A check is a special kind of draft, according to the UCC.

Question 7

How many parties are related to an order?

A) one
B) two
C) three
D) four
E) five

Question 8

The UCC requires banks to certify a check if a customer has sufficient funds in the account.

Question 9

Under the UCC, money orders are considered checks.

Question 10

The UCC states that a customer can postdate a check and that the customer has no obligations to give the bank notice of the postdated check.

Question 11

Under the UCC Article 3, checks are considered negotiable instruments.

Question 12

Which of the following is true regarding parties who are related to an order?

A) A drawer, payee, and drawee are all related to an order.
B) A payee and drawer are related to an order, but a drawee is not.
C) A drawee and payee are related to an order, but a drawer is not.
D) A payee is related to an order, but a drawer and a drawee are not.
E) A drawer and a drawee are related to an order, but a payee is not.

Question 13

The Federal Reserve has stated that Regulation E applies to e-money transactions.

Question 14

Both commercial and consumer electronic fund transfers are governed by the Electronic Fund Transfer Act.

Question 15

A check that is substituted for a lost check is called a substitute check.

Question 16

A ________ is the party that give the order and the ________ is the party that must obey that order.

A) drawer, drawee
B) drawee, drawer
C) payee, payer
D) payer, payee
E) draftee, drafter

Question 17

A stop payment order is valid for a period of 90 days only.

Question 18

Every bank in the United States has at least one account with the Federal Reserve.

Question 19

A customer cannot order a stop payment on an electronic fund transfer.

Question 20

A (n) ________ is considered an instrument whereby one party orders the second party to pay an amount of money to the party listed on the instrument.

A) draft
B) note
C) mark
D) instrument
E) certificate of deposit.

Question 21

Which of the following is false regarding certified checks?

A) If a bank refuses to certify a check, the check is considered dishonored.
B) If a bank refuses to certify a check, the check lacks the extra protection of certification.
C) If a bank certifies a check, the drawer of the check is no longer liable for the amount of the check.
D) If a bank certifies a check, the bank has become primarily liable for the check.
E) Once a check is certified, funds of the customer are removed from his or her account and placed in the bank's certified check account.

Question 22

There are ________ central banks that make up the Federal Reserve System.

A) one
B) five
C) ten
D) twelve
E) twenty

Question 23

Which statement is correct regarding entities considered banks under the UCC?

A) Savings and loans and trust companies are considered banks, but credit unions are not.
B) Savings and loans and credit unions are considered banks, but trust companies are not.
C) Trust companies and credit unions are considered banks, but savings and loans are not.
D) Savings and loans, credit unions, and trust companies are all considered banks.
E) Only an entity holding itself out as a "bank" is considered a bank under the UCC, and therefore neither savings and loans, credit unions, nor trust companies are considered banks.

Question 24

Which of the following is false regarding checks?

A) Because of electronic fund transfers, checks are of little importance in the U.S. today.
B) In 2009, Americans wrote approximately 70 billion checks.
C) Of all the negotiable instruments regulated by the UCC, checks are the most common type used.
D) Checks are considered negotiable instruments under Article 3 of the UCC.
E) Article 4 creates a framework controlling deposit and checking agreements between banks and customers; and when Articles 3 and 4 conflict, Article 4 is to take precedence.

Question 25

Phillip wrote a check which is considered a(n) ________ that orders the bank to pay a fixed amount of money on demand.

A) note
B) promissory note
C) endorsement
D) acknowledgment draft
E) a special draft

Question 26

Raul has had a very successful weekend with his lawn mowing and lawn care business. He makes a deposit of $6,500. The depositary bank may place a hold on the funds for how long?

A) 24 hours
B) 48 hours
C) five days
D) eight days
E) ten days

Question 27

Which of the following is a bank receiving a transferred check during a collection process excluding the first bank and the last bank?

A) Depositary.
B) Acknowledging.
C) Collecting.
D) Intermediary.
E) Transferring.

Question 28

________ banks are the first to receive a check for payment.

A) Donor
B) Repository
C) Depositary
D) Acceptance
E) Payee

Question 29

The first ________ of any amount deposited in a bank must be available to the depositor on the business day following the day of deposit.

A) $100
B) $200
C) $300
D) $400
E) $500

Question 30

First Bank has determined that 2:00 p.m. is the cutoff hour for handling checks, and that all checks received after this deadline will be posted to the customer's account the following day. Ronald, an attorney, is irate about the bank's policy and tells the clerk that its policy violates the UCC. Is he correct?

A) Yes, the UCC does not allow banks to establish cutoff hours for handling checks.
B) Yes, although the UCC allows banks to establish cutoff hours for handling checks, the earliest a bank may require for such a policy is 4:00 p.m.
C) No, the UCC allows banks to establish cutoff hours for making entries on their books.
D) No, the UCC specifically states that all banks must establish a 2:00 p.m. cutoff hour for handling checks.
E) No, the UCC is silent regard cutoff hours for banks.

Question 31

A cashier's check is a check for which

A) needs a special endorsement.
B) both the drawer and the drawee are the same bank.
C) two parties must agree to be bound.
D) there are two separate banks.
E) where there are three responsible parties.

Question 32

A check is referred to as a(n) ________ when the depositary bank is the same bank as the payor bank.

A) "in-place item"
B) "combined item"
C) "continued item"
D) "on-us item"
E) "uniform item"

Question 33

Assuming a proper and timely claim is made, which of the following is true regarding the UCC's allowance of full recovery in the event that certain types of checks are lost, stolen, or destroyed?

A) The UCC allows for full recovery if a cashier's check is lost, stolen, or destroyed; but full recovery is not allowed if a teller's check or certified check is lost, stolen, or destroyed.
B) The UCC allows for full recovery if a cashier's check or certified check is lost, stolen, or destroyed; but full recovery is not allowed if a teller's check is lost, stolen, or destroyed.
C) The UCC allows for full recovery if a cashier's, certified, or teller's check is lost, stolen, or destroyed.
D) The UCC allows for full recovery if a cashier's check is lost, stolen, or destroyed; but in regard to a teller's check or certified check, full recovery is only allowed if the instrument is lost or stolen, not if it is destroyed.
E) Because individuals are expected to properly safeguard checks, the UCC does not allow for recovery if a cashier's, teller's, or certified check is lost, stolen, or destroyed.

Question 34

A ________ bank, besides a payor bank, handles the check during the collection process.

A) depository
B) acknowledging
C) collecting
D) intermediary
E) transferring.

Question 35

Belinda brings a check into First American Bank. The check is written by Tolin and is drawn on First American Bank. This is an example of a(n) ________.

A) cashier's check
B) notarized check
C) acknowledged check
D) certified check
E) note

Question 36

A ________ check is a check that is drawn by one bank and usually drawn on another bank.

A) registered
B) certified
C) teller's
D) draft
E) transferable

Question 37

Which of the following is an institution created to facilitate the exchange of checks and drafts drawn by banks on one another, as well as to enable banks to settle their daily balances?

A) A clearinghouse
B) A transferring institution
C) A facilitating institution
D) An acknowledging institution
E) An approval institution

Question 38

Which of the following banks is the bank that is responsible to either respond to the check by dishonoring it or becoming liable for the face amount of a check.

A) Depository bank
B) Repository bank
C) Payor bank
D) Intermediate bank
E) Payee bank

Question 39

The bank upon which a check is drawn is the ________ bank.

A) Payor
B) Payee
C) Depositary
D) Transfer
E) Acceptor

Question 40

In which of the following types of checks does the bank draw on itself to pay a specific person?

A) Certified.
B) Agreed.
C) Acknowledged.
D) Cashier's.
E) Promise.

Question 41

________ allows a consumer to directly transfer funds from a banking account to a merchant.

A) An electronic authorized system
B) A direct pay system
C) An authorized direct pay system
D) A point-of-sale system
E) A pay-by-electronics system

Question 42

Which of the following was the result on appeal in Merisier v. Bank of America, the case in the text in which the plaintiff sued challenging the bank's determination that based on her involvement, she was not entitled to funds obtained through alleged fraudulent use of her debit card?

A) On the basis that it was not clearly erroneous, the court on appeal upheld the lower court's decision in favor of the bank.
B) Although recognizing that no deference was due the trial court's decision in favor of the defending bank, the appellate court ruled in favor of the defending bank based on its own review of the facts.
C) The appellate court ruled in favor of the defending bank on the basis that because the plaintiff's PIN number was used, she had no right to recover for alleged fraudulent transactions.
D) The appellate court ruled in favor of the plaintiff because the decision of the lower court in favor of the defending bank was clearly erroneous.
E) Recognizing that no deference was due the trial court's decision in favor of the defending bank, the appellate court ruled in favor of the plaintiff because the preponderance of the evidence was in her favor.

Question 43

Sam did not keep track of his ATM card. One day he realized that he had not seen the card in a while, and, after looking for it, realized that it was missing. Unfortunately, over $1,000 had been fraudulently purchased using the card by the time Sam reported it missing. The first fraudulent charge was made 45 days before Sam reported to his bank that the card was missing. Which of the following is Sam liable for?

A) $0
B) $50
C) $300
D) $500
E) $1,000

Question 44

[Bad Check] Alana, a bank teller, saw that customer Liam did not have sufficient funds in his account to cover a check presented for payment. Alana was new and was confused about what to do with the check. She asked the bank manager, Pedro, about any available options. Pedro told her that the bank was required by law to dishonor the check, the check should be returned to the holder with a notation that it had been dishonored, and that it could not be presented again. Alana asked Pedro if there were any policies the bank could institute to provide customers with overdraft protection, and Pedro answered that those were prohibited by law.
Which statement is true regarding Pedro's statement that the bank's only choice was to dishonor the check?

A) Pedro is correct.
B) Pedro is incorrect because under the UCC, the bank could have created an overdraft by paying the check and later charging the account the amount short.
C) Pedro is incorrect because under the UCC, the bank could have created a subsequent draft by paying the check, and the bank would then have needed to seek the customer's permission to charge his account the amount short.
D) Pedro is incorrect because under the UCC, the bank could have created a secondary draft by paying the check and charging the account the amount short.
E) Pedro is incorrect because under the UCC, the bank could have created an excessive draft by paying the check and closing the account at which point, the customer would be free to open a new account.

Question 45

A(n) ________ is defined by the UCC as a change, without consent, that nullifies the obligation of a party to the instrument.

A) endorsement.
B) defacement.
C) material addition.
D) transformation
E) alteration

Question 46

Which of the following would be stored electronically on microchips, magnetic strips, or other computer media and would allow for the elimination of physical currency?

A) Electronic funds.
B) Electronic medium.
C) Digital cash.
D) Digital resources.
E) Electronic resources.

Question 47

The Electronic Fund Transfer Act of 1978 sets out which of the following?

A) The rights and liabilities of the parties in electronic fund transfers.
B) How banks must handle transfers between each other.
C) Consumers can sue the banks if funds are misplaced.
D) How banks must transfer money overseas.
E) How merchants transfer funds between each other.

Question 48

What type of e-money uses microchips for storing data that can be used to transfer funds?

A) Stored-value cards
B) Smart cards
C) Intelligent cards
D) Transfer cards
E) Thumbprint cards

Question 49

Generally, when an endorsement on a check has been forged, which party is the party ultimately liable for the loss?

A) The drawer.
B) The first party to accept the forged instrument.
C) The first endorser of the instrument.
D) The bank of the first party to accept the forged instrument.
E) The bank of the drawer even if proper notice was given of the forgery.

Question 50

Michael just started a new job at Sheridan Hospital, Inc. Michael's bi-weekly paycheck is deposited into his bank account for him electronically by Sheridan Hospital payroll services. This is known as ________

A) a point-of-sale deposit.
B) an authorized deposit.
C) a transferred deposit.
D) an approved deposit.
E) a direct deposit.

Question 51

Assuming the bank is not negligent, in the case of multiple forgeries by the same wrongdoer, what is the effect of a customer's failure to notify the bank of the first forgery in regard to subsequent forgeries?

A) There is no effect because each forgery stands on its own.
B) The customer is barred from recovering on the subsequent forgeries.
C) The customer may recover on a subsequent forgery if it is reported to the bank within 5 days after the statement showing the subsequent forgery is received by the customer.
D) The customer may recover on a subsequent forgery if it is reported to the bank within 10 days after the statement showing the subsequent forgery is received by the customer.
E) The customer may recover on a subsequent forgery if it is reported to the bank within 15 days after the statement showing the subsequent forgery is received by the customer.

Question 52

If a customer's ATM card is lost or stolen, the customer must notify the bank within ________; if that is done, the customer is then liable for only the first ________ stolen.

A) 5 Days; $50
B) 3 Days; $100
C) 2 Days; $50
D) 7 Days; $100
E) 10 Days; $500

Question 53

Regardless of the care used in cashing a check by the bank, a customer must report a forgery within ________ from the date the bank statement showing the forgery is available to the customer or the customer will lose the right to recover.

A) 90 Days
B) 120 Days
C) 180 Days
D) 9 Months
E) 1 Year

Question 54

An oral stop payment order is valid for ________ unless the order is later confirmed in writing.

A) 10 Days
B) 14 Days
C) 30 Days
D) 45 Days
E) 90 Days

Question 55

Which of the following is true regarding types of electronic fund systems?

A) Automated teller machines, pay-by-telephone systems, point-of-sale systems, and direct deposits are all types of electronic fund systems.
B) An automated teller machine is a type of electronic fund system; but pay by telephone systems, point-of-sale systems, and direct deposits are not types of electronic fund systems.
C) Automated teller machines and pay-by-telephone systems are types of electronic fund systems; but neither point-of-sale systems nor direct deposit systems are types of electronic fund systems.
D) Automated teller machines and point-of-sale systems are types of electronic fund systems; but neither a direct deposit system nor a pay-by-telephone system is a type of electronic fund system.
E) Automated teller machines, point-of-sale systems, and direct deposits are all types of electronic fund systems; but a pay-by-telephone system is not a type of electronic fund system.

Question 56

________ time is the period between the time a check is written and the time it is presented for final payment, during which time a customer can still use his or her funds.

A) Transfer
B) Electronic
C) Chargeable
D) Float
E) Usable

Question 57

Nolan receives his bank statement from his bank on January 5th and notices a check that was cashed from his account for $350. The check was not authorized and Nolan does not let the bank know right away because he leaving that day to go on vacation. Nolan forgets about the unauthorized payment until March 10th. At this point, with regards to the check,

A) the bank cannot honor the check
B) Nolan will have to file papers at the bank alleging fraud
C) Nolan cannot hold the bank liable for the check
D) Nolan will have to sue the bank to receive his funds
E) Nolan will have to notify the bank and then wait 30 days to have his money returned

Question 58

Lulu received a Christmas check from her Aunt Beatrice. She forgets about the check and finds it the next October. When she goes to cash the check, the bank refuses to honor the check. This check is considered ________.

A) illegal
B) forged
C) stale
D) inadequate
E) fraud

Question 59

Under the ________, a bank has a duty to pay checks from a customer's account so long as the check is properly payable.

A) Account rule
B) Properly payable rule
C) Payability in fact regulation
D) Check pay rule
E) There is no such rule.

Question 60

A[n] ________ is when money is transferred by an electronic terminal, telephone, or computer.

A) Automatic fund transfer
B) Electronic fund transfer
C) Computer generated transfer
D) Wire transfer
E) Consumer electronic transfer

Question 61

[Bad Check] Alana, a bank teller, saw that customer Liam did not have sufficient funds in his account to cover a check presented for payment. Alana was new and was confused about what to do with the check. She asked the bank manager, Pedro, about any available options. Pedro told her that the bank was required by law to dishonor the check, the check should be returned to the holder with a notation that it had been dishonored, and that it could not be presented again. Alana asked Pedro if there were any policies the bank could institute to provide customers with overdraft protection, and Pedro answered that those were prohibited by law.
Which statement is true regarding Pedro's statement that once the check had been dishonored, it could not be presented again?

A) He was correct.
B) He was incorrect. The holder can attempt to resubmit the check at a later date.
C) He was incorrect. The holder may attempt to resubmit the check at a later date only if all endorsers of the check have been notified of the dishonor.
D) He was incorrect. The holder may resubmit the check only if notice is given to the drawer.
E) He was incorrect. The check may be presented again for payment only if notice has been given both to endorsers and the drawer.

Question 62

[Cash Availability] Arturo, who owns a vineyard in Northern California, deposits two checks in his local bank on Monday. One check is from Simon, who lives in the area, and the other is from Zina, who lives in Atlanta. Arturo needs to write a check to a supplier from his local account.
What is the latest date that Arturo will be available to use the funds from both checks?

A) The following Monday, which is five business days after the deposit of the check which is outside the same Federal Reserve Bank area.
B) Thursday, which is three business days after the deposit of the check which is outside the same Federal Reserve Bank area.
C) Tuesday, which is twenty-four hours after the deposit of both checks.
D) Wednesday, which is two business days after the deposit of both checks.
E) Thursday, which is three business days after the deposit of both checks.

Question 63

[Employee Theft] Tom operates a hardware store. Tom hired an assistant bookkeeper, Emma, who began to steal from him. Emma came into work early one day and took some checks and the rubber stamp of Tom's signature that he kept in an unlocked drawer, and she used the signature stamp to create a check payable to herself. She then took the check to the bank and cashed it. Tom, who was diligent in examining his bank statements, noticed the unauthorized check to Emma. He also noticed an unauthorized check cashed by Rose, another employee. Rose did not know about the stamp in the unlocked drawer. Instead, she broke into a locked cabinet, stole some checks, and skillfully forged Tom's name. Tom immediately informed his bank about the check involving Emma. He held off, however, on informing the bank about Rose, as she had only stolen fifty dollars and he didn't want to lose both employees at once. Tom told the bank manager what he suspected had happened involving Emma taking his stamp and checks from the unlocked drawer. The bank manager told Tom that the bank was not required to reimburse him because Tom was responsible for his own losses. Tom tells the bank manager about the unauthorized check to Rose 35 days after he received his bank statement and discovered the forgery. To his surprise, when Tom opened his next bank statement, he discovered that after Rose wrote the first check for fifty dollars, she had forged more checks for larger amounts. The bank was notified of those forgeries within 15 days of when Tom received his bank statement. The bank refused to reimburse Tom for the checks written by Rose, again claiming that he was responsible for his own losses. Tom institutes litigation against the bank.
Which statement is correct regarding whether Tom will have to bear the loss on the later forgeries, other than the first one, by Rose?

A) Tom will not likely have to bear the loss because there was no delay in bank notification.
B) Tom will not have to bear the loss because forgeries were involved.
C) Tom will not have to bear the loss because the forgeries were by an employee; otherwise, he would have had to bear the loss.
D) Tom will have to bear the loss because the checks were cashed before he notified the bank.
E) Tom will have to bear the loss because he did not notify the bank about the first forgery by Rose within 30 days.

Question 64

[Bad Check] Alana, a bank teller, saw that customer Liam did not have sufficient funds in his account to cover a check presented for payment. Alana was new and was confused about what to do with the check. She asked the bank manager, Pedro, about any available options. Pedro told her that the bank was required by law to dishonor the check, the check should be returned to the holder with a notation that it had been dishonored, and that it could not be presented again. Alana asked Pedro if there were any policies the bank could institute to provide customers with overdraft protection, and Pedro answered that those were prohibited by law.
Which of the following is true regarding what a bank may do to offer overdraft protection to customers?

A) In regard to overdraft protection a bank may (1) credit a customer's checking account although federal law prohibits charging for this service, (2) link a checking account to the customer's savings account to cover the overdraft, and (3) link a checking account to the customer's credit card to cover the overdraft.
B) In regard to overdraft protection a bank may (1) credit a customer's checking account and charge for this service, (2) link a checking account to the customer's savings account to cover the overdraft, and (3) link a checking account to the customer's credit card to cover the overdraft.
C) In regard to overdraft protection a bank has only two options (1) link a checking account to the customer's savings account to cover the overdraft, and (2) link a checking account to the customer's credit card to cover the overdraft.
D) Under federal law, the only option open to a bank in the event of a customer's overdraft is to credit the customer's account although no charge may be made for the service.
E) Under federal law, the only option open to a bank in the event of a customer's overdraft is to credit the customer's account, and a charge may be made for the service.

Question 65

Adrian writes Mauldin a $500 check for the work that he performed on Adrian's computer. Adrian and Mauldin have accounts at the same bank. In this situation, since Adrian and Mauldin's accounts are at the same bank, the bank will issue a(n) ________ credit to the Mauldin's account, and, if the bank does not dishonor the check, the credit will become an actual payment.

A) temporary
B) potential
C) optional
D) provisional
E) Interim

Question 66

[Bank Statement Woes] While examining her bank statements in July, Ariel found several questionable items and telephoned her bank to sort out the problems. First, Ariel was charged $50 in a recurring direct withdrawal for her yoga class. However, Ariel had notified the bank at 4:30 p.m. the previous day that she wanted to cancel the automatic payment. Second, Ariel noticed two EFT payments in February to a veterinarian in another state, which Ariel is certain she did not authorize, since she does not have a pet. Third, Ariel noticed several EFT payments for a magazine subscription, which Ariel did not authorize and she never received any magazines. Also, Ariel wants to stop payment on an internet order she made two hours ago for an expensive watch.
Is Ariel correct that the EFT charge to the veterinarian should be removed because it was not authorized?

A) Yes, because Ariel did not authorize the payment.
B) Yes, but only if Ariel can prove that she did not authorize the payment and that she does not own a pet.
C) Yes, because Ariel did not authorize the payment and she notified the bank of the error.
D) No, because she did not notify the bank of the errors within 90 days of receiving her bank statement.
E) No, because she did not notify the bank of the errors within 60 days of receiving her bank statement.

Question 67

[Employee Theft] Tom operates a hardware store. Tom hired an assistant bookkeeper, Emma, who began to steal from him. Emma came into work early one day and took some checks and the rubber stamp of Tom's signature that he kept in an unlocked drawer, and she used the signature stamp to create a check payable to herself. She then took the check to the bank and cashed it. Tom, who was diligent in examining his bank statements, noticed the unauthorized check to Emma. He also noticed an unauthorized check cashed by Rose, another employee. Rose did not know about the stamp in the unlocked drawer. Instead, she broke into a locked cabinet, stole some checks, and skillfully forged Tom's name. Tom immediately informed his bank about the check involving Emma. He held off, however, on informing the bank about Rose, as she had only stolen fifty dollars and he didn't want to lose both employees at once. Tom told the bank manager what he suspected had happened involving Emma taking his stamp and checks from the unlocked drawer. The bank manager told Tom that the bank was not required to reimburse him because Tom was responsible for his own losses. Tom tells the bank manager about the unauthorized check to Rose 35 days after he received his bank statement and discovered the forgery. To his surprise, when Tom opened his next bank statement, he discovered that after Rose wrote the first check for fifty dollars, she had forged more checks for larger amounts. The bank was notified of those forgeries within 15 days of when Tom received his bank statement. The bank refused to reimburse Tom for the checks written by Rose, again claiming that he was responsible for his own losses. Tom institutes litigation against the bank.
Which statement is true regarding whether the bank will legally have to accept responsibility for the check presented by Emma?

A) The bank has no responsibility to repay Tom on the basis that because Emma was an employee, the check was not considered forged.
B) The bank will be required to repay Tom because the check was forged.
C) Tom will have to bear the loss because the check was paid before the bank had notice of the forgery.
D) Tom will not have to bear the loss because the forgeries were by an employee; otherwise, he would have had to bear the loss.
E) The bank will likely not be required to repay Tom because Tom's negligence in leaving the rubber stamp with his signature readily available likely substantially contributed to the forged signature.

Question 68

[Employee Theft] Tom operates a hardware store. Tom hired an assistant bookkeeper, Emma, who began to steal from him. Emma came into work early one day and took some checks and the rubber stamp of Tom's signature that he kept in an unlocked drawer, and she used the signature stamp to create a check payable to herself. She then took the check to the bank and cashed it. Tom, who was diligent in examining his bank statements, noticed the unauthorized check to Emma. He also noticed an unauthorized check cashed by Rose, another employee. Rose did not know about the stamp in the unlocked drawer. Instead, she broke into a locked cabinet, stole some checks, and skillfully forged Tom's name. Tom immediately informed his bank about the check involving Emma. He held off, however, on informing the bank about Rose, as she had only stolen fifty dollars and he didn't want to lose both employees at once. Tom told the bank manager what he suspected had happened involving Emma taking his stamp and checks from the unlocked drawer. The bank manager told Tom that the bank was not required to reimburse him because Tom was responsible for his own losses. Tom tells the bank manager about the unauthorized check to Rose 35 days after he received his bank statement and discovered the forgery. To his surprise, when Tom opened his next bank statement, he discovered that after Rose wrote the first check for fifty dollars, she had forged more checks for larger amounts. The bank was notified of those forgeries within 15 days of when Tom received his bank statement. The bank refused to reimburse Tom for the checks written by Rose, again claiming that he was responsible for his own losses. Tom institutes litigation against the bank.
Which statement is true about traveler's checks?

A) They require a countersignature by a person whose signature appears on the instrument.
B) Like other types of checks, a traveler's check need not state "traveler's check" on the instrument.
C) They are payable on a designated date.
D) The person who purchases the traveler's check does not sign the instrument until it is ready to be used to make a purchase.
E) The drawer is usually a small, local bank.

Question 69

Tony gives Sonora a check for $500. Sonora deposits it in her local bank, which transfers the check to the Federal Reserve Bank in Chicago, which transfers it to Tony's bank in Wisconsin. What type of bank is the Federal Reserve Bank in this situation?

A) A collecting bank or an intermediary bank
B) A provisional bank
C) A depository bank
D) A collecting bank, but not an intermediary bank
E) A payor bank

Question 70

[Diamond Earrings] Lena ordered a pair of diamond earrings from Uptown Jewelry Store. She paid in advance because the sales clerk told her that the store would have to pay the supplier before the earrings could be shipped. Later that day, Lena found out from a friend of hers that Uptown Jewelry Store was in financial trouble. Lena was concerned and immediately called her bank and issued a stop-payment order on the check she wrote to Uptown Jewelry Store. She gave the bank all of the correct information orally needed to stop payment on the check. The bank, however, did not stop payment on the check. The check was paid, Uptown Jewelry Store went bankrupt, and Lena was unable to get either her money or the earrings from Uptown Jewelry Store. Lena asked the bank manager for a refund of the check amount. The bank manager told her that the stop-payment order was not good because it was oral and that in any event, under the UCC, banks are not liable for failing to stop payment on a check. The bank manager further told Lena that the bank was a holder in due course, and that Lena is liable for any damages sustained by Uptown Jewelry Store or the bank based upon her attempt to stop payment on the check.
Which statement is correct regarding the bank manager saying that the bank was a holder in due course, and that stop-payment orders could not affect the right of a holder in due course to collect?

A) The bank manager is wrong.
B) The bank manager is correct only if he can establish that the bank employee who actually paid the check had no knowledge of the stop-payment order.
C) The bank manager is correct unless Lena can affirmatively prove that the bank employee who actually paid the check had knowledge of the stop-payment order.
D) The bank manager is correct unless Lena can prove fraud in the factum on the part of Uptown Jewelry.
E) The bank manager is correct unless Lena can prove fraud in the factum on the part of Uptown Jewelry and that the bank was aware of the fraud.

Question 71

[Cash Availability] Arturo, who owns a vineyard in Northern California, deposits two checks in his local bank on Monday. One check is from Simon, who lives in the area, and the other is from Zina, who lives in Atlanta. Arturo needs to write a check to a supplier from his local account.
What was the court's ruling in Fambrough v. Wal-Mart Stores, Inc., the case in the text regarding an effort by users of an ATM machine to recover fees charged when using the machine at Wal-Mart stores?

A) Since Wal-Mart posted a warning on the ATM machines that a fee will be charged, Wal-Mart was not liable.
B) Since Wal-Mart posted a warning on the ATM machines that a fee will be charged, Wal-Mart was protected by the Safe Harbor defense.
C) Since Wal-Mart employees could testify that a warning was posted on the ATM machines that a fee will be charged, Wal-Mart was not liable.
D) Since Wal-Mart employees had no personal knowledge of whether a warning that a fee would be charged was posted on the outside of the ATM machines, Wal-Mart was not protected by the Safe Harbor defense.
E) Although Wal-Mart employees had no personal knowledge of whether a warning that a fee would be charged was posted on the outside of the ATM machines, Wal-Mart was still protected by the Safe Harbor defense.

Question 72

[Employee Theft] Tom operates a hardware store. Tom hired an assistant bookkeeper, Emma, who began to steal from him. Emma came into work early one day and took some checks and the rubber stamp of Tom's signature that he kept in an unlocked drawer, and she used the signature stamp to create a check payable to herself. She then took the check to the bank and cashed it. Tom, who was diligent in examining his bank statements, noticed the unauthorized check to Emma. He also noticed an unauthorized check cashed by Rose, another employee. Rose did not know about the stamp in the unlocked drawer. Instead, she broke into a locked cabinet, stole some checks, and skillfully forged Tom's name. Tom immediately informed his bank about the check involving Emma. He held off, however, on informing the bank about Rose, as she had only stolen fifty dollars and he didn't want to lose both employees at once. Tom told the bank manager what he suspected had happened involving Emma taking his stamp and checks from the unlocked drawer. The bank manager told Tom that the bank was not required to reimburse him because Tom was responsible for his own losses. Tom tells the bank manager about the unauthorized check to Rose 35 days after he received his bank statement and discovered the forgery. To his surprise, when Tom opened his next bank statement, he discovered that after Rose wrote the first check for fifty dollars, she had forged more checks for larger amounts. The bank was notified of those forgeries within 15 days of when Tom received his bank statement. The bank refused to reimburse Tom for the checks written by Rose, again claiming that he was responsible for his own losses. Tom institutes litigation against the bank.
Which statement is correct regarding whether Tom will have to bear the loss on the first forged check by Rose?

A) Tom will not have to bear the loss because the forgeries were by an employee; otherwise, he would have had to bear the loss.
B) Tom will not have to bear the loss because the check was forged.
C) Tom will have to bear the loss because he did not notify the bank of the forgery within the time limit required.
D) Tom will have to bear the loss because the check was cashed before he notified the bank.
E) Tom will have to bear the loss because the check was forged.

Question 73

[Diamond Earrings] Lena ordered a pair of diamond earrings from Uptown Jewelry Store. She paid in advance because the sales clerk told her that the store would have to pay the supplier before the earrings could be shipped. Later that day, Lena found out from a friend of hers that Uptown Jewelry Store was in financial trouble. Lena was concerned and immediately called her bank and issued a stop-payment order on the check she wrote to Uptown Jewelry Store. She gave the bank all of the correct information orally needed to stop payment on the check. The bank, however, did not stop payment on the check. The check was paid, Uptown Jewelry Store went bankrupt, and Lena was unable to get either her money or the earrings from Uptown Jewelry Store. Lena asked the bank manager for a refund of the check amount. The bank manager told her that the stop-payment order was not good because it was oral and that in any event, under the UCC, banks are not liable for failing to stop payment on a check. The bank manager further told Lena that the bank was a holder in due course, and that Lena is liable for any damages sustained by Uptown Jewelry Store or the bank based upon her attempt to stop payment on the check.
Which statement is true regarding the manager's statement that stop-payment orders may not be oral?

A) The manager is incorrect because under the UCC, a stop-payment order may be given orally.
B) It depends on the amount of the check because oral stop-payment orders may only be given for checks in an amount over $500.
C) It depends on the amount of the check because oral stop-payment orders may only be given for checks in an amount under $500.
D) It depends on the amount of the check because oral stop-payment orders may only be given for checks in an amount under $1,000.
E) The manager is correct.

Question 74

[Employee Theft] Tom operates a hardware store. Tom hired an assistant bookkeeper, Emma, who began to steal from him. Emma came into work early one day and took some checks and the rubber stamp of Tom's signature that he kept in an unlocked drawer, and she used the signature stamp to create a check payable to herself. She then took the check to the bank and cashed it. Tom, who was diligent in examining his bank statements, noticed the unauthorized check to Emma. He also noticed an unauthorized check cashed by Rose, another employee. Rose did not know about the stamp in the unlocked drawer. Instead, she broke into a locked cabinet, stole some checks, and skillfully forged Tom's name. Tom immediately informed his bank about the check involving Emma. He held off, however, on informing the bank about Rose, as she had only stolen fifty dollars and he didn't want to lose both employees at once. Tom told the bank manager what he suspected had happened involving Emma taking his stamp and checks from the unlocked drawer. The bank manager told Tom that the bank was not required to reimburse him because Tom was responsible for his own losses. Tom tells the bank manager about the unauthorized check to Rose 35 days after he received his bank statement and discovered the forgery. To his surprise, when Tom opened his next bank statement, he discovered that after Rose wrote the first check for fifty dollars, she had forged more checks for larger amounts. The bank was notified of those forgeries within 15 days of when Tom received his bank statement. The bank refused to reimburse Tom for the checks written by Rose, again claiming that he was responsible for his own losses. Tom institutes litigation against the bank.
Which statement is true about cashier's checks, teller's checks, and certified checks?

A) Cashier's, teller's, and certified checks are often used in payment of withdrawal orders.
B) The drawer and the drawee for cashier's, teller's, and certified checks are the same bank.
C) Cashier's, teller's, and certified checks are considered as cash in the business world.
D) Cashier's, teller's, and certified checks are less likely to be denied by a bank.
E) The drawer for cashier's, teller's, and certified checks is the payor bank.

Question 75

[Employee Theft] Tom operates a hardware store. Tom hired an assistant bookkeeper, Emma, who began to steal from him. Emma came into work early one day and took some checks and the rubber stamp of Tom's signature that he kept in an unlocked drawer, and she used the signature stamp to create a check payable to herself. She then took the check to the bank and cashed it. Tom, who was diligent in examining his bank statements, noticed the unauthorized check to Emma. He also noticed an unauthorized check cashed by Rose, another employee. Rose did not know about the stamp in the unlocked drawer. Instead, she broke into a locked cabinet, stole some checks, and skillfully forged Tom's name. Tom immediately informed his bank about the check involving Emma. He held off, however, on informing the bank about Rose, as she had only stolen fifty dollars and he didn't want to lose both employees at once. Tom told the bank manager what he suspected had happened involving Emma taking his stamp and checks from the unlocked drawer. The bank manager told Tom that the bank was not required to reimburse him because Tom was responsible for his own losses. Tom tells the bank manager about the unauthorized check to Rose 35 days after he received his bank statement and discovered the forgery. To his surprise, when Tom opened his next bank statement, he discovered that after Rose wrote the first check for fifty dollars, she had forged more checks for larger amounts. The bank was notified of those forgeries within 15 days of when Tom received his bank statement. The bank refused to reimburse Tom for the checks written by Rose, again claiming that he was responsible for his own losses. Tom institutes litigation against the bank.
Which of the following types of checks may a bank refuse to sell to an individual?

A) Certified checks and cashier's checks, but not teller's checks.
B) Certified checks and teller's checks, but not cashier's checks.
C) Certified checks, but not cashier's or teller's checks.
D) A bank may refuse to sell cashier's checks, teller's checks, and certified checks to anyone.
E) A bank cannot refuse to sell cashier's checks, teller's checks, or certified checks to anyone.

Question 76

[Cash Availability] Arturo, who owns a vineyard in Northern California, deposits two checks in his local bank on Monday. One check is from Simon, who lives in the area, and the other is from Zina, who lives in Atlanta. Arturo needs to write a check to a supplier from his local account.
Arturo's bank tells him they have placed an eight-day hold on the funds. Arturo tells them they cannot do so. Is he correct?

A) Yes, because they must make the funds available on the fifth business day following the day of deposit of the non-local check.
B) Yes, because they must make the funds available on the third business day following the day of deposit of the non-local check.
C) No, if one of the checks was over $5,000.
D) No, if one of the checks was over $10,000.
E) Yes, because a depositary bank must release funds on the fifth business day after transfer to a Federal Reserve Bank.

Question 77

[Bank Statement Woes] While examining her bank statements in July, Ariel found several questionable items and telephoned her bank to sort out the problems. First, Ariel was charged $50 in a recurring direct withdrawal for her yoga class. However, Ariel had notified the bank at 4:30 p.m. the previous day that she wanted to cancel the automatic payment. Second, Ariel noticed two EFT payments in February to a veterinarian in another state, which Ariel is certain she did not authorize, since she does not have a pet. Third, Ariel noticed several EFT payments for a magazine subscription, which Ariel did not authorize and she never received any magazines. Also, Ariel wants to stop payment on an internet order she made two hours ago for an expensive watch.
Is Ariel correct that the recurring charge for the yoga class should be removed because she had notified the bank to cancel the automatic payment?

A) No, because she did not notify the bank at least three days before the preauthorized payment was scheduled.
B) No, because she did not notify the bank at least twenty-four hours before the preauthorized payment was scheduled.
C) No, because she did not notify the bank at least one business day before the preauthorized payment was scheduled.
D) Yes, because she notified the bank at least one business day before the payment was scheduled.
E) Yes, because she notified the bank to cancel the payment.

Question 78

[Cash Availability] Arturo, who owns a vineyard in Northern California, deposits two checks in his local bank on Monday. One check is from Simon, who lives in the area, and the other is from Zina, who lives in Atlanta. Arturo needs to write a check to a supplier from his local account.
Are the funds from both checks required to be available at the same time for Arturo to use?

A) Yes, because they were deposited at the same time.
B) No, because they were written from two different individuals.
C) Probably not, because the checks will be drawn on banks within different Federal Reserve Bank areas, thus, the requirements for availability are different.
D) Yes, because the checks will be drawn on the same bank.
E) Yes, because the UCC requires that all funds be available for use within twenty-four hours of deposit.

Question 79

Which of the following is true about electronic check presentment?

A) The UCC is silent as to electronic check presentment.
B) The individual who encodes the information from the check does not need to warrant that the information is correct.
C) Only the actual check may be transmitted for payment between banks.
D) Banks may transmit substitute checks, instead of the actual checks, for payment between banks.
E) It is not possible process checks on the day of deposit.

Question 80

[Diamond Earrings] Lena ordered a pair of diamond earrings from Uptown Jewelry Store. She paid in advance because the sales clerk told her that the store would have to pay the supplier before the earrings could be shipped. Later that day, Lena found out from a friend of hers that Uptown Jewelry Store was in financial trouble. Lena was concerned and immediately called her bank and issued a stop-payment order on the check she wrote to Uptown Jewelry Store. She gave the bank all of the correct information orally needed to stop payment on the check. The bank, however, did not stop payment on the check. The check was paid, Uptown Jewelry Store went bankrupt, and Lena was unable to get either her money or the earrings from Uptown Jewelry Store. Lena asked the bank manager for a refund of the check amount. The bank manager told her that the stop-payment order was not good because it was oral and that in any event, under the UCC, banks are not liable for failing to stop payment on a check. The bank manager further told Lena that the bank was a holder in due course, and that Lena is liable for any damages sustained by Uptown Jewelry Store or the bank based upon her attempt to stop payment on the check.
Which statement is true regarding the bank manager saying that the bank could not incur any liability for damages for the failure to stop payment on a check?

A) The manager is correct.
B) The manager is incorrect, and the bank will incur liability or damages suffered by a customer due to the failure to stop payment when a stop-payment order was properly provided.
C) The manager is incorrect, and the bank will incur liability or damages suffered by a customer due to the failure to stop payment when a stop-payment order was properly provided, but only up to $500.
D) The manager is incorrect, and the bank will incur liability or damages suffered by a customer due to the failure to stop payment when a stop-payment order was properly provided, but only up to $1,000.
E) The manager is incorrect, and the bank will incur liability or damages suffered by a customer due to the failure to stop payment when a stop-payment order was properly provided, but only up to $1,500.