Negotiable Instruments

Test Key
Name: __________________________________ Date: _____________ Period:
________
Directions: Answer the questions below. Answers may vary but students
should answer close to the !ollowing in order to receive !ull credit.
". Are negotiable instruments the same as cash#
Answer: a negotiable instrument is not cash money. It is a written order or
$romise to $ay a sum o! money either to a s$eci%ed $arty or to the $erson
who handles it.
&. 'hat advantages might chec(s have over electronic $ayments#
Answer: chec(s o)er convenience are very sa!e and a written record o!
transactions. They are very common and their recogni*able structure+!orm
ma(es them a $art o! everyday li!e.
,. -an a $romissory note be considered a negotiable instrument# 'hy
or why not#
Answer: .es because it is a written $romise to $ay a sum o! money to a
s$eci%c individual at a %/ed !uture time.
0. 'hat ris(s might be associated with negotiable instruments#
Answer: ris(s associated with negotiable instruments might include
restrictions $laced on the trans!er by one $erson or another. There might be
a lac( o! !unds being available when the instrument is used !or $ayment.
1. 2ow do elements o! negotiability $rovide !or the trans!er and use o! a
negotiable instrument#
Answer: when you bring a chec( to a ban( to cash or de$osit the elements
o! negotiability directly a)ect how the ban( loo(s at the chec( the ma(er o!
the chec( and you.
3. 'hat does endorsement have to do with the negotiability o! chec(s#
Answer: when you give a chec( to the ban( !or de$osit or $ayment the
ban( will assure that the chec( has been endorsed. In order !or it to be
negotiated it has to be endorsed#
4. 'hen two $eo$le sign a note they are (nown as co5$ayees.
a. True b. 6alse
7. To be negotiable an instrument:
a. -an be !or a %/ed or 8e/ible amount o! money
b. 9ust bear the signature o! the drawee or acce$tor
c. 9ust be $ayable on demand or at a %/ed time
d. -an be oral or written
:. Dra!ts involve three $arties:
a. The drawer the drawee and the acce$tor
b. The drawer the drawee and the ma(er
c. The drawer the ma(er and the $ayee
d. The drawer the ma(er and the acce$tor
";. Negotiable instruments must be $ayable on demand or at a
de%nite time.
a. True b. 6alse
"". In order !or an instrument to be negotiable it must be either
ty$ed or handwritten in $en.
a. True b. 6alse
"&. There are two basic (inds o! negotiable instruments:
a. Dra!ts and bonds
b. Notes and -Ds
c. Dra!ts and chec(s
d. Notes and dra!ts
",. A certi%cate o! de$osit is a note $rovided by a ban(.
a. True b. 6alse
<hort Answer: .our !riend always writes chec(s be!ore actually receiving the
cash money and+or his $aychec(. 2e claims the money will be de$osited by
the time the chec(s clear. Is this a good idea or not# =/$lain.
>Answer: No. ?ecause the chec(s could reach his account !or $ayment
be!ore his !unds have been de$osited. There!ore the money will not be in his
account to $ay the chec(s and he ris(s overdrawing his account@