Negotiable Instruments Quiz
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Questions and Answers

Which of the following is the best definition of a negotiable instrument?

  • An informal document promising payment to anyone who holds it, non-transferable and non-assignable.
  • A verbal agreement promising payment to a specified person or assignee, non-transferable and non-assignable.
  • A signed document promising payment to a specified person or assignee, transferable but non-assignable.
  • A signed document promising payment to a specified person or assignee, transferable and assignable. (correct)

    • Which of the following is NOT an example of a negotiable instrument?

  • Bank transfer receipt (correct)
  • Cashier's Cheque
  • Promissory note
  • Traveller's Cheque

    • What is the role of the payee in a negotiable instrument?

  • The payee is the person who promises to make the payment.
  • The payee is the person who receives the payment. (correct)
  • The payee is the person who witnesses the signing of the document.
  • The payee is the person who transfers the instrument to a secondary market.

    • What distinguishes a negotiable instrument from a non-negotiable one?

    <p>The presence of a signature and promise of payment to a specified person or assignee.</p> Signup and view all the answers

    What is the function of a personal Cheque as a negotiable instrument?

    <p>It serves as a draft, payable by the payer’s financial institution once it's received, in the exact amount specified.</p> Signup and view all the answers

    Study Notes

    Understanding Negotiable Instruments

    • A negotiable instrument is a signed document that promises payment to a specified person or assignee.
    • It is a formalized IOU, transferable and promising to pay the bearer a sum of money at a future date or on-demand.
    • Common examples of negotiable instruments include personal checks, cashier's checks, money orders, certificates of deposit (CDs), promissory notes, and traveler's checks.
    • The person receiving the payment, known as the payee, must be named or otherwise indicated on the instrument.
    • Some negotiable instruments may trade on a secondary market due to their transferable and assignable nature.
    • Personal checks are a well-known example of negotiable instruments, serving as a draft payable by the payer's financial institution once received.
    • Cashier's checks also function as drafts, requiring the funds to be available when issued.
    • The negotiable instrument must specify the amount to be paid and the party to whom payment is to be made.
    • Negotiable instruments provide a level of security and assurance to the payee that the promised payment will be made.
    • These instruments are governed by specific laws and regulations to ensure their enforceability and validity.
    • Negotiable instruments play a crucial role in facilitating financial transactions and trade, providing a means of payment and transfer of funds.
    • Understanding the nature and characteristics of negotiable instruments is essential for individuals and businesses engaged in financial activities.

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    Description

    Test your knowledge of negotiable instruments with this quiz! Learn about the characteristics and examples of negotiable instruments, including personal and cashier's checks, money orders, and more.

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