25: Banking System and Electronic Financial Transactions

Which of the following is correct regarding the "deferred posting rule"? A) It allows banks to fix an afternoon hour of 2:00 or later as a cutoff hour for the purpose of processing checks and deposits. B) According to this rule, when a customer deposits a check for collection, the depository bank does not have to pay the customer until the check clears. C) It mandates banks to mail their checking account customers monthly statements of their accounts and any canceled checks should accompany this statement. D) According to this rule, 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.

A) It allows banks to fix an afternoon hour of 2:00 or later as a cutoff hour for the purpose of processing checks and deposits.

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.

A) The bank agrees to accept the check when it is presented for payment.

Which of the following is an accurate description of wrongful dishonor of a check? A) a bank refusing to honor a properly payable check when there are sufficient funds in the drawer's account B) a bank refusing to honor a certified check when it is presented for payment more than a year from its date of issue C) a bank refusing 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 refusing to honor an ordinary check when it believes that the payee has altered the amount on the check

A) a bank refusing to honor a properly payable check when there are sufficient funds in the drawer's account

In which of the following cases is an overdraft created in a drawer's account? A) 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) the drawer issues a stop-payment order for a check, but the bank still goes ahead and pays the holder of the check C) 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) the payee presents the check after six (6) months from the date of the check and the bank still pays the holder

A) a properly payable check issued by the drawer is presented for payment, but the drawer's account does not have sufficient funds in it

Which of the following 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) an ordinary check B) a promissory note C) a bill of exchange D) a credit memorandum

A) an ordinary check

Banks in the collection process that are not the depository or payer bank are called ________ banks. A) intermediary B) terminal C) collecting D) provisional

A) intermediary

A check that has been outstanding for more than ________ is considered stale. A) six (6) months B) one (1) year C) three (3) months D) nine (9) months

A) six (6) months

Which of the following is a federal statute, enacted by the United States 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) the Dodd-Frank Wall Street Reform and Consumer Protection Act B) the Depository Institutions Deregulation and Monetary Control Act C) the Financial Institutions Reform, Recovery, and Enforcement Act D) the Riegle-Neal Interstate Banking and Branching Efficiency Act

A) the Dodd-Frank Wall Street Reform and Consumer Protection Act

Which of the following is a government agency that insures deposits at most banks and savings institutions in the United States? A) the Federal Deposit Insurance Corporation B) the Federal Reserve System C) the Resolution Trust Corporation D) the Bureau of Federal Credit Unions

A) the Federal Deposit Insurance Corporation

Article 3 of the Uniform Commercial Code (UCC) establishes which of the following? A) the requirements for negotiable instruments (for example, checks) B) the rules that regulate bank deposit procedures for checking accounts C) the rules that regulate the creation and collection of and liability for wire transfers D) the guidelines for ownership of securities by investors

A) the requirements for negotiable instruments (for example, checks)

Cryptocurrency is also known as ________ currency. A) virtual B) counterfeit C) quasi- D) retro-

A) virtual

Which of the following was the first major cryptocurrency? A) Ethereum B) Bitcoin C) Litecoin D) Neo

B) Bitcoin

Which of the following is correct regarding certified checks? A) Banks are obligated to certify checks 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) A bank's refusal to certify a check is a dishonor of the check.

B) Certified checks are payable at any time from the date they are issued.

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 over six (6) months ahead of the date

B) Mrs. Dawson had dated the check for the previous year instead of the current year.

George, John, Paul, Ringo, and Brian are five (5) 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 can the bank recover the money from once the forgery is detected? A) George B) Paul C) Brian D) Ringo

B) Paul

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 the 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 (2) parties.

B) Unlike ordinary checks, cashier's checks do not require the purchaser to hold a checking account at the bank.

The bank where the payee or holder of a check has an account is known as the ________ bank. A) payer B) depository C) intermediary D) private

B) depository

Which of the following terms 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)

B) electronic funds transfer system (EFTS)

Which of the following is a provision of Article 4 of the Uniform Commercial Code (UCC)? A) establishing the requirements for negotiable instruments (for example, 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 the ownership of securities by investors

B) establishing the rules and principles that regulate bank deposit procedures for checking accounts offered by commercial banks

In banking terminology, a creditor-debtor relationship is created when a customer ________. A) fails to maintain adequate funds in his bank checking account B) makes a deposit into a bank C) writes a check against his account D) writes a postdated check drawn on his bank

B) makes a deposit into a bank

Which of the following regulatory agencies was set up under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act? A) the Federal Deposit Insurance Corporation B) the Consumer Financial Protection Bureau C) the National Credit Union Administration D) the United States Securities and Exchange Commission

B) the Consumer Financial Protection Bureau

A check is finally paid when which of the following occurs? 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

B) the payer bank fails to dishonor the check within certain statutory time periods

The Pittsburgh Peelers are a professional soccer team playing in Major League Soccer. They recently approached the Darth Water Corporation (Darth Water), a leading sports-drink manufacturer, to sponsor their team for the upcoming season. Darth Water agrees to sponsor the team for $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. Which of the following parties is the originator of the wire transfer in the above case? A) the Pittsburgh Peelers B) the Jersey Shore Bank C) Darth Water D) the Orange County Bank

C) Darth Water

Edmundo writes a check for $100 on his account at First Interest Bank to repay the $100 he owes Perry. He gives the check to Elise and tells her to hand it over to Perry. However, Elise loses the check before she can give it to Perry. Later, Edmundo realizes that he had not written Perry's name on the lost check. According to the provisions of the Uniform Commercial Code (UCC), on which of the following parties should the risk of loss of the check be placed? A) Elise B) Perry C) Edmundo D) First Interest Bank

C) Edmundo

Greg owes Timothy $1,000 and gives him a check to repay the amount. However, when Timothy presents it at Greg's bank five (5) months later, 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 accurate, 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 (4) months from the date of giving the check to Timothy.

C) Greg had issued a stop-payment order on the check immediately after giving it to Timothy.

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 or her checking account D) a customer issues stop-payment instructions on a check worth $15,000 issued to a payee

C) a customer deposits $20,000 through a cashier's check in his or her checking account

A check that has been modified without authorization and thus modifies the legal obligation of a party is known as a(n) ________ check. A) stale B) incomplete C) altered D) forged

C) altered

Fawn is an accountant with Rolf and Associates, P.L.L.C. (Rolf and Associates), a law firm in downtown Memphis, Tennessee. The firm maintains a checking account with Portis Bank for its operating expenses. On the seventh of every month, Fawn receives an inventory report from the office manager listing the office supplies that are needed. Fawn places the appropriate orders with Office Depot and writes them a check against the office's checking account. In the above banking transaction, Rolf and Associates is the ________. A) indorser B) payee C) drawer D) drawee

C) drawer

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

C) honored

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) an indorsement of the check C) presentment across the counter D) a final settlement

C) presentment across the counter

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 financial products and services D) overseeing, inspecting, and disciplining accounting firms in their roles as auditors of public companies

C) regulating financial products and services

Article 4A of the Uniform Commercial Code (UCC) establishes which of the following? A) the requirements for negotiable instruments (for example, checks) B) the rules and principles that regulate bank deposit and collection procedures for checking accounts offered by commercial banks C) the rules that regulate the creation and collection of and liability for wire transfers D) the guidelines for ownership of securities by investors

C) the rules that regulate the creation and collection of and liability for wire transfers

Francis Jeffers purchased a cashier's check for $5,000 from Northern Star Bank. The check was made payable to Kyle Naughton and was delivered to him. Twelve (12) 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 (8) 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. In which of the following circumstances, if accurate, would the court have ruled 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 (6) months.

D) Jeffers renewed the stop-payment order on the original check at the end of six (6) months.

Which of the following is one of the provisions of the Electronic Fund 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.

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.

Jill Scott is an accountant with Cameron and Associates, P.L.L.C. (Cameron and Associates), a law firm in downtown Seattle, Washington. The firm maintains a checking account with Southern Rock Bank for its operating expenses. On the tenth of every month, Jill receives 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

D) Southern Rock Bank

A person can purchase which of the following from a bank by paying the bank the amount of the check plus a fee for issuing the check? A) an indorsed check B) an ordinary check C) a blank check D) a cashier's check

D) a cashier's check

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 which of the following? A) a non-negotiable instrument B) a presentment warranty C) a stale check D) an "on them" item

D) an "on them" item

If there are major failures of several large banks or many small banks, and the Federal Deposit Insurance Corporation (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 United States government

D) the United States government

Etta receives a check for $100 from Sheldon. Sheldon has a balance of $3,600 in his checking account with First Principal Bank. In this case, Etta is which of the following? A) the drawer B) the drawee C) the payer D) the payee

D) the payee

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

TRUE

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.

TRUE

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

TRUE

A forged signature is wholly inoperative as the signature of a drawer.

TRUE

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

TRUE

An oral order to stop payment on a check is binding on the payer bank for fourteen (14) calendar days.

TRUE

Article 4A of the Uniform Commercial Code (UCC) applies only to commercial electronic funds transfers.

TRUE

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

TRUE

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.

TRUE

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.

TRUE

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

TRUE

If a drawer and a payee or holder have accounts at different banks, the check is called an "on them" item when it is presented for payment by the payee.

TRUE

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.

TRUE

If there are major failures of several large banks or many small banks, and the Federal Deposit Insurance Corporation (FDIC) insurance fund is insufficient to cover all of the depositors' losses, the United States government will pay the depositors the money owed by the FDIC.

TRUE

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

TRUE

Many issuances of cryptocurrencies in an initial coin offering (IC)) and securities tokens offerings (STO) must be registered with the Securities and Exchange Commission (SEC).

TRUE

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.

TRUE

The Dodd-Frank Wall Street Reform and Consumer Protection Act reorganized and streamlined the federal government agencies that regulate the banking industry and strengthened bank regulatory oversight by federal agencies.

TRUE

The deferred posting rule allows banks to establish an afternoon hour of 2:00 P.M. or later as a cutoff hour for the purpose of processing checks and deposits.

TRUE

The drawer of a check is the customer who maintains the checking account and writes (draws) checks against the account.

TRUE

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.

TRUE

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

TRUE

Under Uniform Commercial Code (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.

TRUE

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.

TRUE

A check that has been outstanding for more than three (3) months is considered stale, and the bank is under no obligation to pay it.

FALSE

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

FALSE

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

FALSE

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

FALSE

Certified checks become stale after two (2) years from the date of their issue.

FALSE

Cryptocurrency is pseudonymous, meaning that the funds are tied to persons or real-world entities.

FALSE

If a customer notifies the issuing bank within two (2) days of learning that her debit card has been lost or stolen, the customer is liable for only $500 for unauthorized use.

FALSE

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.

FALSE

If the drawer does not have enough money in his 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.

FALSE

In the case of presentment across the counter, the payer bank has six (6) banking days to dishonor the check.

FALSE

The Electronic Fund Transfer Act (EFTA) regulates consumer and commercial electronic funds transfers.

FALSE

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

FALSE

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

FALSE

The check collection process is governed by Article 3 of the Uniform Commercial Code (UCC).

FALSE

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

FALSE

The drawer's failure to report a forged or altered check to the bank within six (6) months of receiving the bank statement and canceled checks containing it relieves the bank of any liability for paying the instrument.

FALSE