Chapter 15 - Banking in the Digital Age

Question 1

cashier’s check

Answer 1

• a check drawn by a bank on itself

Question 2

certified check

Answer 2

• a check that has been accepted by the bank on which it is drawn
• essentially, the bank, by certifying (accepting) the check, promises to pay the check at the time the check is presented

Question 3

clearinghouse

Answer 3

• a system or place where banks exchange checks and drafts drawn on each other and settle daily balances

Question 4

collecting bank

Answer 4

• any bank handling an item for collection, except the payor bank

Question 5

depositary bank

Answer 5

• the first bank to receive a check for payment

Question 6

digital cash

Answer 6

• funds contained in computer software, in the form of secure programs stored on microchips and other computer devices

Question 7

e-money

Answer 7

• prepaid funds recorded in a computer or a card (such as a smart card)

Question 8

electronic fund transfer (EFT)

Answer 8

• a transfer of funds with the use of an electronic terminal, a telephone, a computer, or magnetic tape

Question 9

Federal Reserve System

Answer 9

• a network of twelve central banks, located around the country and headed by the Federal Reserve Board of Governors
• most banks in the United States have Federal Reserve accounts

Question 10

intermediary bank

Answer 10

• any bank to which an item is transferred in the course of collection, except the depositary or payor bank

Question 11

overdraft

Answer 11

• a check written on a check in account in which there are insufficient funds to cover the amount of the check

Question 12

payor bank

Answer 12

• the bank on which a check is drawn (the drawee bank)

Question 13

Regulation E

Answer 13

• a set or rules issued by the Federal Reserve System’s Board of Governors under the authority of the Electronic Fund Transfer Act to protect users of electronic fund transfer systems

Question 14

smart card

Answer 14

• prepaid funds recorded on a microprocessor chip embedded on a card; one type of e-money

Question 15

stale check

Answer 15

• a check, other than a certified check, that is presented for payment more than 6 months after its date

Question 16

stop-payment order

Answer 16

• and order by a bank customer to his or her bank not to pay or certify a certain check

Question 17

substitute check

Answer 17

• a negotiable instrument that is a paper reproduction of the front and back of an original check and contains all of the same information required on checks for automated processing

Question 18

traveler’s check

Answer 18

• a check that is payable on demand, drawn on or payable through a bank, and designated as a traveler’s check

Question 19

SAMPLE TEST QUESTIONS

1. Albert buys a surround system from his neighbor George at George’s garage sale. Albert writes George a check for $250 for the sound system. George is :
   a. the certified
   b. the drawee
   c. the drawer
   d. the payee

Answer 19

ANSWER :
(D)
CORRECT :
(D)

Question 20

SAMPLE TEST QUESTIONS

2. Martha has a checking account with Homeplace Bank. Martha signs a check “payable to Phillipa” drawn on Martha’s account. Homeplace Bank is :
   a. the payer
   b. the drawee
   c. the drawer
   d. the payee

Answer 20

ANSWER :
(C)
CORRECT :
(B)

Question 21

SAMPLE TEST QUESTIONS

3. Brendan signs a check “pay to the order of City College Bookstore” drawn on his account in Delta Bank to pay for his current semester’s textbooks. The bookstore deposits the check in its account in Eagle Bank. Like most checks, this check is :
   a. a one-party instrument
   b. a nonnegotiable instrument
   c. a special type of draft
   d. not a substitute for cash

Answer 21

ANSWER :
(A)
CORRECT :
(C)

Question 22

SAMPLE TEST QUESTIONS

4. Oscar buys a new HD Tv from a Priceless Retail Mart, using the means that accounts for more retail payments than any other. This means of payment is :
   a. a cashier’s check
   b. a debit card
   c. a personal check
   d. digital cash

Answer 22

ANSWER :
(B)
CORRECT :
(B)

Question 23

SAMPLE TEST QUESTIONS

5. Fredrick signs a draft “ pay to the order of Jennifer” drawn on Fredrick’s account in Harborside Bank to buy Jennifer’s jet ski. Fredrick asks the bank to indicate on the face of the check that it will accept when Jennifer presents if for payment. If the bank agrees, this will be :
   a. a cashier’s check
   b. a certified check
   c. a teller’s check
   d. a traveler’s check

Answer 23

ANSWER :
(C)
CORRECT :
(B)

Question 24

SAMPLE TEST QUESTIONS

6. Amelia writes a check to Barry on her account at Community Savings Bank. The bank dishonors the check even though Amelia has sufficient funds in her account. The bank is :
   a. liable to Amelia
   b. liable to itself
   c. liable to the payee on Amelia’s next check
   d. not liable

Answer 24

ANSWER :
(A)
CORRECT :
(A)

Question 25

SAMPLE TEST QUESTIONS

7. Cleo writes a check for $100 drawn on Debit & Credit Bank and presents it to Elegant Jewelers for payment. If the checked is not backed by sufficient funds, Cleo may be prosecuted for :
   a. forgery
   b. fraud
   c. negligence
   d. nothing

Answer 25

ANSWER :
(C)
CORRECT :
(B)

Question 26

FACT PATTERN 15-1B
Dana takes her car to Efficient Auto Repair Service, which repairs the car and bills Dana for $500. She writes out a check drawn on First Choice a Bank, but later, believing that Efficient Auto did not repair the car properly, issues a stop-payment order.

Question 27

FACT PATTERN 15-1B

8. Refer to Fact Pattern 15-1B. If First Choice pays the check, the bank :
   a. can sue Dana for a wrongful stop-payment order
   b. can sue Efficient Auto for breach of contract
   c. is liable to Efficient Auto for the time and trouble to return the payment
   d. is liable to Dana’s loss due to wrongful payment

Answer 27

ANSWER :
(B)
CORRECT :
(D)

Question 28

FACT PATTERN 15-1B

9. Refer to Fact Pattern 15-1B. First Choice :
   a. is liable to Efficient Auto for the amount of the check
   b. must stop payment if First Choice has a reasonable time to act
   c. need not follow Dana’s order because it was issued after the check
   d. need not follow Dana’s order unless the check was certified

Answer 28

ANSWER :
(B)
CORRECT :
(B)

Question 29

SAMPLE TEST QUESTIONS

10. Shakira issues a check drawn on Thrifty Bank to Ranch & Farm Supply to pay for a rototiller. Later, Shakira discovers a defect in the device and order Thrifty to stop the payment on the check. Shakira does not renew the order, and the bank clears the check eight months later. The bank :
    a. must recredit Shakira’s account
    b. must obtain funds from Ranch & Farm to cover the check
    c. must substitute acceptable goods
    d. need not recredit Shakira’s account

Answer 29

ANSWER :
(A)
CORRECT :
(D)

Question 30

SAMPLE TEST QUESTIONS

11. Valley Bank retains the cancelled checks of its customers. Valley must be able to provide customers with legible copies of checks paid for :
    a. one year
    b. five years
    c. seven years
    d. nine years

Answer 30

ANSWER :
(B)
CORRECT :
(C)

Question 31

SAMPLE TEST QUESTIONS

12. Kenyon steals one of Lavender’s check and forges her signature. Lavender’s bank, Metro Bank, pays the check. Lavender can recover from :
    a. Kenyon, but not Metro Bank
    b. Metro Bank, which cannot recover from Kenyon
    c. Metro Bank, which can recover from Kenyon
    d. no one

Answer 31

ANSWER :
(C)
CORRECT :
(C)

Question 32

SAMPLE TEST QUESTIONS

13. Flores forges Grendel’s signature on a check “payable to the order of Flores” drawn on Grendel’s account in Harbortown Bank. Most likely, if the bank pays the check :
    a. the Federal Reserve will reimburse all parties for their costs
    b. Grendel and the bank will each suffer half of the amount of the loss
    c. Grendel will be liable for the amount
    d. the bank will have to recredit Grendel’s account

Answer 32

ANSWER :
(D)
CORRECT :
(D)

Question 33

SAMPLE TEST QUESTIONS

14. Dru signs a check “pay to the order of Eppie” drawn on Dru’s account in First State Bank. Greta forges Eppie’s indorsement. First State pays the check. Most likely :
    a. Dru will be liable for the amount
    b. Eppie will have to pay Dru for the amount
    c. First State will have to recredit Dru’s account
    d. the Federal Reserve will reimburse all parties for their costs

Answer 33

ANSWER :
(C)
CORRECT :
(C)

Question 34

SAMPLE TEST QUESTIONS

15. On Monday, Foster deposits in his account at Guaranty Bank a local check for $500. After 5:00 P.M. on Friday, from these funds, Foster can withdraw no more than :
    a. $100
    b. $400
    c. $500
    d. $600

Answer 34

ANSWER :
(C)
CORRECT :
(C)

Question 35

FACT PATTERN 15-2B
Belle draws a check on her account at Capital Credit Union in New York payable to Distribution Marketing, Inc., in San Francisco. Distribution Marketing deposits the check in its account at Equity Bank. Equity Bank deposits the check in the Federal Reserve Bank of San Francisco, which transfers it to Federal Reserve Bank, New York. That Federal Reserve Bank sends the check to Capital Credit.

Question 36

FACT PATTERN 15-2B

16. Refer to Fact Pattern 15-2B. Equity Bank, Distribution Marketing’s bank, is :
    a. the cashing bank
    b. the depositary bank
    c. the intermediary bank
    d. the payor bank

Answer 36

ANSWER :
(C)
CORRECT :
(B)

Question 37

FACT PATTERN 15-2B

17. Refer to Fact Pattern 15-2B. Capital Credit, Belle’s bank, is :
    a. the cashing bank
    b. the depositary bank
    c. the intermediary bank
    d. the payor bank

Answer 37

ANSWER :
(D)
CORRECT :
(D)

Question 38

FACT PATTERN 15-2B

18. Refer to Fact Pattern 15-2B. When Equity Bank received the check, it was required to pass it on :
    a. before midnight of the next business day
    b. before might if the next day, whether or not it was a “banking” day
    c. before noon of the next business day
    d. within five business days

Answer 38

ANSWER :
(A)
CORRECT :
(A)

Question 39

SAMPLE TEST QUESTIONS

19. When procession a check, Superior Bank encodes information, such as the amount of the check, on the item. Superior thereby warrants to any subsequent bank or payor :
    a. the item has been returned to the drawer
    b. nothing
    c. the checked has been processed manually
    d. the encoded information is correct

Answer 39

ANSWER :
(D)
CORRECT :
(D)

Question 40

SAMPLE TEST QUESTIONS

20. Missy’s debit card, issued by National United Bank, is stolen and used without her permission. She tells the bank within thirty days. She may be required to pay no more than :
    a. $5
    b. $50
    c. $500
    d. $5,000

Answer 40

ANSWER :
(B)
CORRECT :
(C)