finance 2244 unit 3 test
If an instrument is made , the party in possession is required only to deliver the instrument to transfer it.
"to bearer"
Negotiable instruments are a part of the commercial law through:
Article 3 of the UCC
The law of negotiable instruments has its origins in:
England
are drafts that mature on the payment date set in the future.
Time or term draft
specify payment to be made in the future, such as 60 days from the date of the writing of the draft.
Time or term drafts
A check must have______as its drawee.
a bank
Under Article 3 of the UCC, a check is:
a draft drawn on a bank and payable on demand
Debt collection usually begin with:
a letter stating that the account is past due
Under Article 3 of the UCC, a note is:
a promise by one party to pay a certain sum of money to another party; two parties are involved: the maker and the payee; payment may be set at a date in the future
The draft that requires immediate payment by the drawee to the payee, which is true of a check, is called:
a sight draft
According to the UCC, a draft may be:
a. payable in the future b. payable on sight c. payable within a certain time d. none of the other choices; those are features of a check e. all of the other specific choices are correct
When a company gives credit to a customer, it may create which of the following?
an installment account or an open account
Under Article 3 of the UCC, a draft is:
an unconditional written order to pay that involves three parties: drawer, drawee, payee; the drawee may be a bank, person, or business; payment may be set at a future time
If a negotiable instrument is ___, the assignee has the same contract rights and responsibilities as the assignor
assigned
With negotiable instruments, the party to receive payment is the:
beneficiary
When a draft guarantees payment for goods in international trade, the draft is called a:
bill of exchange
Debt incurred by business includes:
both long and short-term debt
A form of check in which the bank is both the drawer and the drawee is called a:
cashier's check
Julia is buying a house from Mary. Mary wants to ensure that the bank will honor the check Julia uses to buy the house so she will probably insist that Julia pay with a:
cashier's check
An "acknowledgment by a bank" that it has received money from a customer with a promise by the bank that it will repay the money received at a date specified or, in some instances, on demand is a:
certificate of deposit
A business that extends credit to buyers should establish:
credit and collection policies
A________is one who lends money to, or allows goods or services to be purchased on credit by, another party, the debtor.
creditor
To raise needed capital, small companies most often rely on:
debt financing
As a creditor, a business should:
determine the debtor' ability to repay and establish debt collection practices
A(n) is a legally binding written order to pay a fixed sum of money that involves three parties.
draft
The______agrees to make the payment, such as the bank making a payment based on a document presented to it.
drawee
The_________issues or creates the document that requests payment, probably from a bank, but it could be from another party.
drawer
Most large certificates of deposit are:
e. negotiable e. insured by the FDIC for up to $100,000
To transfer an instrument made "to the order" of the payee, the payee must:
endorse and deliver the instrument to a third party
The sale of stock in the company or the sale of negotiable instruments that are subject to securities regulation is known as:
equity financing
An open account means:
full payment is due within a fixed time period
The most common use of drafts is to:
guarantee payment for goods in international trade
To be found a holder in due course, a transferee must:
have given value for the negotiable instrument, taken it without knowledge of any defects and in good faith
When real estate is used as collateral to secure the loan, the note is a:
installment note
Which of the following is one of the UCC's requirements for an instrument to be negotiable:
it must be payable on demand or at a specified time
Which of the following is one of the UCC's requirements for an instrument to be negotiable:
it must be written
Which of the following is one of the UCC's requirements for an instrument to be negotiable:
it must state a certain sum of money
Governments disfavor bearer instruments because:
law enforcement agencies find it difficult to trace money transferred in bearer form
The of ___ a note is the party who promises to pay another party.
maker
Besides being written, an unconditional order or promise to pay, must be made out for a definite sum of money. To be negotiable under Article 3 of the UCC, an instrument also must meet which of the following requirements it:
must be payable on demand or at a specified time period and must be signed by the maker or the drawer and must be made out "to order" or "to bearer"
Most large certificates of deposit are:
negotiable
A(n) functions as a substitute for cash.
negotiable instrument
Although commercial paper may be either negotiable or nonnegotiable, only fall under the UCC.
negotiable instruments
If an instrument is determined to be nonnegotiable, and a dispute arises, Article 3 will:
not apply and the parties will need to resolve their dispute with reference to the common law of contracts
A promise to pay a certain sum of money to another party is a type of commercial paper called a(n):
note
A check must be paid:
on demand
For credit under a(n)_______the terms define the credit period available to the customer and any discounts offered for early payment.
open account
In a(n)________, goods and services are sold on an invoice that shows transactions; full payment is expected within a fixed time period.
open account
The most common form of credit is a(n):
open account
A(n) has the same contract responsibilities as an assignee under a nonnegotiable instrument.
ordinary holder
Every year, creditors have to absorb in unpaid debt:
over $20 billion
A sight draft is:
payable upon presentation by the seller to the buyer of the goods
With negotiable instruments, the party to receive payment is the:
payee
A(n) is a note promising to repay borrowed money, probably with interest.
promissory note
A(n)_______allows more debt to be added to the account over time.
revolving account
In a(n)______, the debtor makes a minimum monthly payment and more debt can be added to the account over time.
revolving account
A requires immediate payment by the drawee to the payee.
sight draft
Negotiable instruments are governed by:
the UCC
In Associated Home and RV Sales v. Bank of Belen, a bookkeeper for Associated forged many checks on the account at the Bank of Belen. Associated sued the bank for negligence to recover the stolen funds. The appeals court held:
the bank could be liable under the UCC for negligence ; that would be determined at trialr
Nonnegotiable instruments are governed by
the common law of contracts
Capacity refers to:
the debtor's ability to pay
Collateral refers to:
the debtor's assets to secure debt
Capital refers to:
the debtor's financial condition
Character refers to:
the debtor's reputation
The one who agreed to make a payment, such as a bank making a payment based on a document presented to it is:
the drawee
The one who issues or creates the document that requests payment, probably from a bank, is called:
the drawer
The one who receives payment from a negotiable instrument is called:
the payee
Before passage of laws affecting negotiable instruments:
the right to payment was a contract right that could not be sold
If a negotiable instrument is assigned, the assignee has:
the same contract rights and responsibilities as the assignor
Cashier's checks are frequently used in transactions where:
the seller demands guaranteed payment
If a negotiable instrument is_____ , the transferee takes the instrument free of any of the transferor's contract.
transferred by negotiation
Promissory notes are instruments that involve ___ parties.
two
Which of the following are sources of credit information:
a. customer financial statements b. banks c. credit reporting agencies d. trade associations e. all of the other specific choices are sources of credit information
To transfer an instrument made "to the order" of the payee, the payee must:
a. endorse the instrument b. deliver the instrument to a third party d. both a and b are necessary
Negotiable instruments do not include:
a. notes b. certificates of deposit c. checks d. promissory notes e. all of the other choices are negotiable instruments
Which of the following is one of the UCC's requirements for an instrument to be negotiable:
c. it must be made out "to order" or "to bearer"
When a payee wants to get cash immediately for a draft he can sell it to another party, but interest must be paid. This is called:
discounting the draft
Which of the following requirements is necessary to be a holder in due course:
the transferee must give value for the negotiable instrument
A commercial instrument where one party has a legal obligation to pay another party a certain sum of money and involves a maker and a payee only is called:
a note
When a note is to be paid in regular payments but also includes a final payment more than double the regular payments, the note is called:
a payee note
Debt collections may be done by:
a. invoice b. follow-up letter c. phone calls d. personal visits e. all of the other choices
Which of the following is one of the UCC's requirements for an instrument to be negotiable:
a. it must be written b. it must be an unconditional order or promise to pay c. it must be signed by the maker or drawer d. it must be payable on demand or at a specified time e. all of the other specific choices are correct
Which of the following is one of the UCC's requirements for an instrument to be negotiable:
a. it must be written b. it must state a certain sum of money c. it must be made out "to order" or "to bearer" d. it must be payable on demand or at a specified time e. all of the other specific choices are correct
Negotiable instruments function as:
a. substitutes for cash b. credit devices c. devices for making business deals easier d. are subject to Article 3 of the UCC e. all of the other choices
Credit terms must specify which of the following:
a. the interest rate, if any, that applies to the sum owed b. the principal of the debt c. payment dates d. all of the other specific choices must be specified
Credit terms must include:
a. the principal of a debt b. the interest rate, if any, that applies c. the payment dates d. all of the other specific choices
Which of the following requirements is necessary to be a holder in due course:
a. the transferee must give value for the negotiable instrument b. the transferee must take the instrument without knowledge that it is overdue or defective c. the transferee must take the instrument in good faith d. all of the other specific choices are necessary
Most creditors seek information about debtors from:
a. trade associations b. credit reporting agencies c. customer financial statements d. banks e. all of the other choices
Payment practices vary around the world. Islamic law is interpreted by many Muslims to mean that interest payments are prohibited by the Koran. In practice, this means that in countries that practice Islamic law:
borrowing is done by lending arrangements that pay the equivalent of interest
Negotiable instruments under the UCC do not include:
cash
A "draft drawn on a bank and payable on demand" is a:
check
The most commonly used form of draft is a:
check
When personal property is used as collateral to back up a loan, the note created is a:
collateral note
A creditor is one who lends money to, or allows goods or services to be purchased on credit by, another party, the:
debtor
If a negotiable instrument is transferred by negotiation, the transferee takes the instrument:
free of the transferor's responsibilities
If an instrument is found to be negotiable under the UCC, it may be freely traded without concern for any existing contract responsibilities if the instrument is in the possession of a holder in due course. To be a holder in due course, one must:
give value for the instrument, accept it without knowledge of any defects (for example, that it is overdue), and take the instrument in good faith
A financial institution that receives a promissory note has the right to:
sell the note to another party
Negotiable instruments are not
subject to Article 2 of the UCC
TP sells franchises in the Old Fast Food chain. TP sells a franchise to Choi for $100,000 by cashier's check. Choi then hears that TP is going out of business and tries to stop payment on the check. TP has already transferred the money to a third party who meets the UCC's requirements for a holder in due course. The bank paid that third party. TP declares it is out of business. In a subsequent lawsuit:
the court will find that the third party is a holder in due course and, despite the fact that TP has defrauded Choi, not require the third party to repay Choi
Which of the following requirements is necessary to be a holder in due course:
the transferee must take the instrument in good faith
