CBAD 345 EXAM 3 questions with
complete solutions A+ rated
negotiable instrument (commercial paper) - correct answer ✔✔A signed writing (record) that contains
an unconditional promise or order to pay an exact sum of money, on demand or at a specified future
time to a specific person or order, or to a bearer: classified as promises to pay or orders to pay
A negotiable instrument can function as a substitute for: - correct answer ✔✔cash or as an extension of
credit
For a negotiable instrument to operate PRACTICALLY as either a substitute for cash or a credit device, it is
essential that the instrument be: - correct answer ✔✔easily transferable without danger of being
uncollectible
What are the four types of negotiable instruments as outlined by the UCC? - correct answer ✔✔drafts,
checks, promissory notes, and certificates of deposits (CDs)
What section of the UCC outlines instruments? - correct answer ✔✔Section 3-104
A demand instrument is: - correct answer ✔✔payable on demand (it is payable immediately after it is
issued & for a reasonable period of time thereafter)
A time instrument is: - correct answer ✔✔payable at a future date
Draft - correct answer ✔✔Any instrument (such as a check) drawn on a drawee (such as a bank) that
ORDERS the drawee to pay a certain sum of money, usually to a third party (the payee), on demand or at
a definite future time.
Orders to pay - correct answer ✔✔drafts and checks
, Promises to Pay - correct answer ✔✔promissory notes and certificates of deposits (CDs)
Drawer - correct answer ✔✔The party that initiates a draft (writes a check, for example), thereby
ordering the drawee to pay.
Drawee - correct answer ✔✔The party that is ordered to pay a draft or check. With a check, a financial
institution (such as a bank) is always the drawee
Payee - correct answer ✔✔a person to whom an instrument (such as a check) is made payable: the
person receiving the $$$
time draft - correct answer ✔✔a draft payable at a specified future date
sight draft (demand draft) - correct answer ✔✔payable upon presentation to the drawee (usually a bank)
for payment
For the drawee (the bank) to be obligated to honor (pay) the order (as demanded by a draft or check),
the drawee must: - correct answer ✔✔be obligated to the drawer (the party creating the draft or check
& signing it) either by agreement or through a debtor creditor relationship
EXAMPLE: Time Draft
On January 16, ABC Real Estate orders $1,000 worth of office supplies from ET Supply Company, with
payment due in 90 days. Also on January 16, ABC sends ET a draft drawn on its account with the FN Bank
as a payment. In this scenario, who is the drawer, drawee, & payee? - correct answer ✔✔Drawer - ABC
Real Estate
Drawee - FN Bank (ABC's current bank)
Payee - ET Supply Company
Acceptance - correct answer ✔✔the drawee's written promise/agreement to pay the draft when it
comes due (usually by writing the word accepted on the draft with a date & signature)
complete solutions A+ rated
negotiable instrument (commercial paper) - correct answer ✔✔A signed writing (record) that contains
an unconditional promise or order to pay an exact sum of money, on demand or at a specified future
time to a specific person or order, or to a bearer: classified as promises to pay or orders to pay
A negotiable instrument can function as a substitute for: - correct answer ✔✔cash or as an extension of
credit
For a negotiable instrument to operate PRACTICALLY as either a substitute for cash or a credit device, it is
essential that the instrument be: - correct answer ✔✔easily transferable without danger of being
uncollectible
What are the four types of negotiable instruments as outlined by the UCC? - correct answer ✔✔drafts,
checks, promissory notes, and certificates of deposits (CDs)
What section of the UCC outlines instruments? - correct answer ✔✔Section 3-104
A demand instrument is: - correct answer ✔✔payable on demand (it is payable immediately after it is
issued & for a reasonable period of time thereafter)
A time instrument is: - correct answer ✔✔payable at a future date
Draft - correct answer ✔✔Any instrument (such as a check) drawn on a drawee (such as a bank) that
ORDERS the drawee to pay a certain sum of money, usually to a third party (the payee), on demand or at
a definite future time.
Orders to pay - correct answer ✔✔drafts and checks
, Promises to Pay - correct answer ✔✔promissory notes and certificates of deposits (CDs)
Drawer - correct answer ✔✔The party that initiates a draft (writes a check, for example), thereby
ordering the drawee to pay.
Drawee - correct answer ✔✔The party that is ordered to pay a draft or check. With a check, a financial
institution (such as a bank) is always the drawee
Payee - correct answer ✔✔a person to whom an instrument (such as a check) is made payable: the
person receiving the $$$
time draft - correct answer ✔✔a draft payable at a specified future date
sight draft (demand draft) - correct answer ✔✔payable upon presentation to the drawee (usually a bank)
for payment
For the drawee (the bank) to be obligated to honor (pay) the order (as demanded by a draft or check),
the drawee must: - correct answer ✔✔be obligated to the drawer (the party creating the draft or check
& signing it) either by agreement or through a debtor creditor relationship
EXAMPLE: Time Draft
On January 16, ABC Real Estate orders $1,000 worth of office supplies from ET Supply Company, with
payment due in 90 days. Also on January 16, ABC sends ET a draft drawn on its account with the FN Bank
as a payment. In this scenario, who is the drawer, drawee, & payee? - correct answer ✔✔Drawer - ABC
Real Estate
Drawee - FN Bank (ABC's current bank)
Payee - ET Supply Company
Acceptance - correct answer ✔✔the drawee's written promise/agreement to pay the draft when it
comes due (usually by writing the word accepted on the draft with a date & signature)
