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BADM 7140- Exam Two Questions with Explanations of Answers | latest upate 2024
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BADM 7140- Exam Two Questions with Explanations of Answers | latest upate 2024
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BADM 7140- Exam TwoDraft - ANS-an unconditional written order that involves three parties
-drawer: the party creating the draft
- drawee: ordered to pay money
-payee: who the money gets paid to (usually)
"an order by a drawer directing the drawee to pay the payee"
Time Draft vs Sight Draft - ANS--time draft: payable at a definite future time
-sight draft: payable on sight upon presentation to the drawee
Acceptance - ANS-the drawee's written promise to pay the draft when it comes due
(usually accepted by writing accepted across the face of the face w/ date and signature of
drawee)
trade acceptance - ANS--the seller of the goods is both the drawer and the payee
-the draft orders the buyer to pay a specified amount to the seller, usually a stated time in the
future
Banker's Acceptance - ANS-when a draft orders the buyer's bank to pay (usually international)
Check - ANS--most common type of draft
-demand instruments (payable on demand), checking accounts can be called demand deposits
-writer of the check is the drawer, bank on which check is drawn is the drawee, and the person
to whom the check is payable is the payee
-also a three party instrument
promissory note - ANS-a written promise made by one person (maker) to pay another (payee) a
specified amount of money on demand or at a definite time
Certificate of Deposit (CD) - ANS--another type of note
-issued when a party deposits funds with a bank and the bank promises to repay the funds (with
interest) on a certain date
-bank is the maker and the depositor is the payee
-time deposit so purchaser-payee is NOT allowed to withdraw funds before the date of maturity
Requirements to be a NI - ANS-1. Unconditional Promise to Order or Bearer (-can not depend
on the occurrence or nonoccurrence of some other event)
2. Payable in demand or at a specific time (in order to calculate when the statute of limitations
will apply, 'payable on demand' if not specified)
, 3. Sum Certain (any type of recognizable currency)
4. In Writing
5. Signed (by either the maker if its a note/CD OR the drawer if its a draft/check)
Acceleration Clause - ANS-allows a payee or other holder of a time instrument to demand
payment of the entire amount due, with interest, if a certain event occurs, such as a default in
payment of an installment when due
Extension Clause - ANS-allows the date of maturity to be extended into the future
Bearer Instrument/Bearer - ANS-an instrument that does not designate a specific payee
bearer: a person in possession of an instrument that is payable to a bearer or indorsed in blank
Bearer Instrument Examples - ANS-"payable to order of bearer"
"payable to Simon/bearer"
"payable to bearer"
"pay cash"
"pay to the order of cash"
Factors that do not affect negotiability - ANS-- date of an instrument; undated
- antedating (precedes actual date) & postdating (after actual date)
- hand written terms out weigh typed terms
- words out weight numbers
- when "with interest" is stated but interest amount is not, the interest rate is the judgement rate
of interest
- check is always negotiable, but any other instrument can be made non-negotiable by maker
Negotiating Order Instruments - ANS--Negotiated by delivery with any necessary indorsements
-Requires both indorsement and delivery (by transfer into another person's possession).
Negotiating Bearer Instruments - ANS-Unlike an order instrument, a bearer instrument need not
be endorsed to transfer the payee's rights to the transferee. All that is required is delivery to the
new bearer.
Indorsement - ANS-A signature placed on an instrument for the purpose of transferring one's
ownership rights in the instrument.
Usually on back or on a separate paper (allonge)
Indorser and Indorsee - ANS--indorser: a person who transfers a note or a draft by signing it
and delivering it to another person
-indorsee: the person to whom the check is indorsed and delivered
blank indorsement - ANS-does not specify a particular indorsee and can consist of a mere
signature, bearer instrument (can be negotiated by delivery only)
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