fin 240 kaplowitz worksheet 25.1: types of negotiable instruments

Promissory note

a written promise made by one person, the maker, to pay a fixed sum of money to another person, the payee or a subsequent holder, on demand or on a specified date

Payee

eastman supply company

Drawee

first national bank of whitacre

A promissory note can be made payable at a(n) _____ time, which is also known as "on demand."

indefinite

Drawer

jane adams

A fundamental function of negotiable instruments is to make sure that the instrument can be easily transferred without danger of becoming uncollectible.

true

A negotiable instrument can function as a substitute for cash or an extension of credit.

true

A negotiable instrument is a signed writing that contains an unconditional promise or order to pay an exact amount, either on demand or at a specified future time.

true

Assignment of a promissory note does not affect the maker's obligation to pay the note as promised.

true

Because certificates of deposit (CDs) are time deposits, the purchaser-payee typically is not allowed to withdraw the funds before the date of maturity.

true

Checks are _____ instruments because they are payable on demand.

demand

Banker's acceptance

drawn by a creditor against the debtor, who pays the draft at maturity; the drawer creates a draft without designating a payee; the draft can pass through many parties' hands before a bank, the drawee, accepts it, transforming the draft into a banker's acceptance

Acceptance

the drawee's signed agreement to pay a draft when presented

Issue

the first transfer, or delivery, of an instrument to a holder

If an owner of a certificate of deposit (CD) wants to withdraw the funds before the date of maturity, what are her or his choices?

the owner can sell the cd to a third party

Drawer

the party that initiates a draft (writes a check, for example), thereby ordering the drawee to pay

Drawee

the party that is ordered to pay a draft or check; with a check, a financial institution is always the drawee

If a seller of goods is both the drawer and the payee of a draft, the drawer has created a:

trade acceptance

Check

a draft drawn by a drawer ordering the drawee bank or financial institution to pay a certain amount of money to the holder on demand

Trade acceptance

a draft that is drawn by a seller of goods ordering the buyer to pay a specified sum of money to the seller, usually at a stated time in the future; on a trade acceptance, the seller is both the drawer and the payee

Certificate of deposit (CD)

a note of a bank in which a bank acknowledges a receipt of money from a party and promises to repay the money, with interest, to the party on a certain date

Payee

a person to whom an instrument is made payable

Negotiable instrument

a signed writing that contains an unconditional promise or order to pay an exact sum of money, on demand or at an exact future time, to a specific person or order, or to bearer

The difference between a time draft and a sight draft is that:

a time draft is payable at a definite future time, whereas a sight draft is payable when it is presented to the drawee

The Uniform Commercial Code article that deals with negotiable instruments is:

article 3

Maker

one who promises to pay a certain sum to the holder of a promissory note or certificate of deposit (cd)