Chapter 25

Question 1

Negotiable instrument

Answer 1

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

Question 2

Basic types of negotiable instruments

Answer 2

Drafts
Checks
Notes
Certificates of deposit

Question 3

Issue

Answer 3

The first transfer or delivery of an instrument to a holder

Question 4

Draft

Answer 4

Any instrument drawn on a drawee that orders the drawee to pay a certain sum of money, usually to a third party on demand or at a definite future time

Question 5

Drawer

Answer 5

The party that initiates a draft thereby ordering the drawee to pay

Question 6

Drawee

Answer 6

The party that is ordered to pay a draft or check. With a check, a financial institution is always the drawee

Question 7

Payee

Answer 7

A person to whom an instrument is made payable

Question 8

Acceptance

Answer 8

The drawee’ written promise to pay the draft when it comes due

Question 9

Trade acceptance

Answer 9

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. The buyer accepts the draft by signing the face of the draft, thus creating an enforceable obligation to pay the draft when it comes due. On trade acceptance, the seller is both the drawer and the payee

Question 10

Bankers acceptance

Answer 10

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 accepts it, transforming the draft into a bankers acceptance. Acceptances can be purchased and sold in a way similar to securities

Question 11

Check

Answer 11

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

Question 12

Promissory note

Answer 12

A written promise made by one person (the maker) to pay a fixed sum of money to another person (the payee) on demand or on a specified date

Question 13

Maker

Answer 13

One who promises to pay a certain sum to the holder of a promissory note or certificate of deposit

Question 14

Certificate of deposit

Answer 14

A note in 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

Question 15

Requirements for negotiability

Answer 15

1. Be in writing
2. Be signed by the maker or drawer
3. Be an unconditional promise or order to pay
4. State a fixed amount of money
5. Be payable on demand or at a definite time
6. Be payable to order or to bearer

Question 16

Signature

Answer 16

Under the UCC, any symbol executed or adopted by a party with a present intention to authenticate a writing

Question 17

Acceptor

Answer 17

The person who accepts a draft and who agrees to be primarily responsible for its payment

Question 18

Presentment

Answer 18

The act of presenting an instrument to the party liable on the instrument to collect payment; also occurs when a person presents an instrument to a drawee for acceptance

Question 19

Order instrument

Answer 19

A negotiable instrument that is payable “to the order of an identified person” or “to an identified person or order”

Question 20

Bearer instrument

Answer 20

Any instrument that is not payable to a specific person, including instruments payable to the bearer or to cash

Question 21

Bearer

Answer 21

A person in the possession of an instrument payable to bearer or indorsed in blank