BANKING
Chapter 5 Study Guide
Negotiable Instruments
True/False
 The most common form of negotiable instrument is a check.
 Under some circumstances, it is legal to write a postdated check.
 Check use in the United States is beginning to decline.
 Transit numbers are issued to financial institutions that hold accounts at a Federal Reserve Bank.
 A check does not have to be written on paper to be legal.
 You do not have to pay off your credit card at the end of every month.
 A check cannot be negotiated until it has been endorsed.
 It is legal for a bank to make different check-cashing rules for customers and non-customers.
 A restrictive endorsement limits both the transferability and the further negotiability of a check.
Multiple Choices
 The payee is the feature of the check that indicates who is to receive the funds.
 The drawer is the person who signs a draft.
 The 9-digit number printed on a check that identifies the bank that holds the checking account is
responsible for payment is called the transit number.
 A debit card directly transfers money from a person’s account to the account of a retailer.
 Three elements of negotiability are must be written, must state the amount to be paid, and must be signed.
 The term negotiation, as it applies to a negotiable instrument, applies to the ability of the holder to obtain
its value.
 The Uniform Commercial Code of 1958 largely eliminated the wide variation of legal regulation from the
country’s payments system.
 “For Deposit Only” is an example of a restrictive endorsement.
Completion
 A written order or promise to pay a sum of money is called a negotiable instrument.
 A postdated check is a check that is dated later than the date on which it is actually written.
 A bearer instrument is payable to whoever holds it.
 Smart cards have embedded microchips use embedded logic to change and store values and record
transactions.
 A bill of exchange is a negotiable and unconditional written order addressed by one party to another.
 A charge card allows a consumer to make purchases, but the account must be paid in full at the end of the
month.
 A short-term note or draft issued by a corporation or government is called commercial paper.
 When the same funds are counted in two depository banks, the funds are called float.
 A full endorsement transfers a check to another specified party.
Short Answer
What three things are shown by a check’s identification numbers?
Define the term elements of negotiability and list the six elements.
What is a promissory note?
Essay
Name the four primary types of endorsement. Which is the most commonly used?
What is a draft? When are they typically used?
What is a float? What effect does float have on the money supply?
What is EFT? (Name the acronym and define)