Deck 22: Checks and the Banking System in the Twenty-First Century

Question 1

An overdraft occurs when a

A) bank allows a customer to write checks for more than the amount of money on deposit.
B) customer writes a bad check.
C) bank cashes a check that is more than three months old.
D) bank cashes a check dated after the actual date of issue.

Answer 1

A

Question 2

One type of relationship between a bank and a depositor is that of debtor-creditor.

Answer 2

True

Question 3

An oral stop-payment order is effective for fourteen days.

Answer 3

True

Question 4

A postdated check is unenforceable.

Question 5

When a depositor dies, the authority of the bank to pay or certify the depositor's checks ends immediately.

Question 6

A bank is required to honor all checks written by a depositor, even when there are insufficient funds in the depositor's account.

Question 7

A bank may refuse to pay a depositor's check for any reason.

Question 8

A check more than six months old is void.

Question 9

A depositor has the right to stop payment on a check he or she has written.

Question 10

If the payee or a holder has a check certified, the drawer is released from all liability for payment.

Question 11

The drawer of a certified check cannot legally force a bank to stop payment on this type of check.

Question 12

Giving a postdated check does not constitute a present fraud.

Question 13

A check that is more than six months old is called a

A) stale check.
B) postdated check.
C) certified check.
D) bad check.

Question 14

If a bank wrongfully dishonors a depositor's check, the bank is liable only to the holder.

Question 15

When two or more checks are presented to a bank for payment at the same time, and the depositor's account is insufficient to pay them all, the bank may

A) declare all the checks automatically void.
B) pay the checks in any order until the funds in the depositor's account run out.
C) declare all the checks stale checks.
D) all of these.

Question 16

Marsh, without fraudulent intent, wrote a check for $500 on her checking account at Mechanics Mutual Bank, where only $350 was on deposit. Marsh has no agreement with the bank regarding overdrafts. In this case the bank

A) must pay $350.
B) must pay $500.
C) may honor the check and charge Marsh's account for no more than $350.
D) may honor the check and charge Marsh's account for $500.

Question 17

The Electronic Funds Transfer System (EFTS) allows money to be transferred electronically from a depositor's bank account into the account of a store where the depositor made a purchase.

Question 18

By using checks, a business has

A) no need to keep large amounts of cash on hand.
B) an easy and safe way of sending payments through the mail.
C) proof of payment.
D) all of these.

Question 19

A depositor who writes a bad check has committed a criminal act.

Question 20

A bank is absolutely liable to the drawer-depositor for paying any checks that have been materially altered.

Question 21

A check is always payable on ____________________.

Question 22

A postdated check is

A) payable on demand.
B) invalid.
C) payable on its due date.
D) payable thirty days after its due date.

Question 23

To hold a bank liable for a forged signature, after the canceled check has been returned, the drawer has to report the forgery within

A) thirty days.
B) sixty days.
C) ninety days.
D) six months.

Question 24

Franklin wrote a check on the Second National Bank payable to Garth. When Garth presented the check for payment, Second National refused to cash it, although the check was in proper form and Franklin had sufficient funds on deposit at the bank. The Second National Bank is liable to

A) Franklin and Garth.
B) Franklin only.
C) Garth only.
D) no one.

Question 25

When Dale received his bank statement, he examined the canceled checks returned with the statement and discovered that one check had been signed with Dale's name by an unauthorized person. Dale immediately informed the bank. Should Dale's checking account have been charged by the bank for the amount of this particular check?

A) Yes; the bank, after carefully inspecting the instrument at the time of payment, is not liable for errors made on checks cashed for a depositor.
B) Yes; the bank is relieved from liability if the drawer fails to exercise great care in seeing that only properly written checks are presented for payment at the bank.
C) No; the bank itself is liable when it cashes a check on which the drawer's signature has been forged.
D) No; the bank itself is liable for negligence on the part of any of its depositors.

Question 26

A depositor's personal check that the bank guarantees to pay is a

A) postdated check.
B) cashier's check.
C) certified check.
D) traveler's check.

Question 27

New World Bank paid a check issued by Fermi, a depositor, that had been altered from $50 to $500. The amount Fermi can recover from the bank is

A) $50.
B) $450.
C) $500.
D) $550.

Question 28

If a bank dishonors a check for no good reason, the customer can collect from the bank

A) only the service fee charged by the bank.
B) all damages the customer suffers.
C) any damages that result from injury to the customer's reputation resulting from a bad credit rating or from being arrested and prosecuted.
D) all service fees charged by the bank and all damages the customer suffers.

Question 29

If a drawer has a check certified, the drawer is still ____________________ liable for payment of the check.

Question 30

Jamison wrote a check for $500 drawn on Charter Bank and gave it to Donalson. When Donalson presented the check for payment the bank dishonored it for insufficient funds. Donalson may sue:

A) Both Charter Bank and Jamison.
B) Jamison only.
C) Charter Bank only.
D) the Federal Reserve Bank.

Question 31

A check written for an amount greater than the amount the depositor has in his or her account is called a(n) ____________________.

Question 32

When a check is certified, the certifying bank

A) dishonors the check.
B) draws on its own funds.
C) guarantees payment of the check.
D) draws on the funds in another bank.

Question 33

Reynolds sent Winston a check for $1,000 as payment on a debt. The check was dated March 1, but Winston did not present the check to Wider National Bank, the drawee, until October 8 the same year. If Wider National Bank refuses to pay the check, claiming it is stale, then it becomes liable to

A) Reynolds.
B) Winston.
C) both Reynolds and Winston.
D) no one.

Question 34

A written stop-payment order is effective for

A) ten days.
B) fourteen days.
C) six months.
D) one year.

Question 35

Jenks requested a bank in Boston to write him a check on its own funds so that he would be able to pay a bill. This check is legally known as a

A) cashier's check.
B) bank draft.
C) traveler's check.
D) certified check.

Question 36

When a customer presents a merchant with a debit card to purchase goods, the transaction is called a(n)

A) EFTS transfer.
B) ATM transaction.
C) VISA transaction.
D) POS transaction.

Question 37

A check drawn on the bank's own funds is called a(n) ____________________.

Question 38

A(n) ____________________ check is one that is dated after its actual date of issue.

Question 39

Traveler's checks are

A) issued in set denominations.
B) issued without a named payee.
C) readily accepted all over the world.
D) all of these.

Question 40

Renee made out a check payable to Dawn. Dawn had the check certified by First National, the drawee bank, and then indorsed it to Quatro, who is the present holder. What effect does certification have on the parties?

A) Renee alone is discharged from liability.
B) Dawn alone is discharged from liability.
C) First National becomes primarily liable, and both Renee and Dawn are discharged from liability.
D) Renee remains secondarily liable.

Question 41

The ____________________ enables depositors to transfer money electronically from their accounts to accounts of creditors.

Question 42

On May 5, Alston issued a $150 check to Mauch. Three days later, on May 8, Alston died. Mauch presented the check to the bank for payment on May 10. The bank knew of Alston's death but paid the $150 to Mauch. Was the bank's action legal?

Question 43

Willis signed a blank check and left it in his desk drawer. A thief stole the check, filled it in, and presented it to the bank for payment. The bank paid the check. Can Willis recover the amount of the check from the bank?

Question 44

What is a major feature of the proposed concept of virtual cash?

Question 45

A(n) ____________________ is a type of cashier's check used primarily by tourists who want a safe method of carrying funds while traveling.

Question 46

Braun issued a $35 check to Rice. Rice took the check to Braun's bank and had it certified. Rice then raised the amount to $350 and negotiated it to Turner. Turner presented the check for payment and received $350. When Braun received her canceled checks, she noticed the alteration and notified the bank. Who will suffer the loss?

Question 47

____________________ refers to the amount of time between the date a check is deposited and the date the funds from that check are made available to the depositor.

Question 48

To hold the bank liable for payment of a check with a forged indorsement, the drawer must report the forgery within ____________________.

Question 49

Udall issued a $400 check to Jackson. Udall's bank refused to pay the check when Jackson presented it, even though there were sufficient funds in Udall's account. Can Jackson sue the bank for damages for the wrongful dishonor of the check?

Question 50

Failure to indorse a check is considered improper presentment, and the person presenting the check is not considered a(n) ____________________.