ON-LINE TEST BANK FOR MILLER & JENTZ



Interactive Quiz for ALT-12e, Chapter 27

Chapter 27 – Checks and Banking in the Digital Age

1. The main focus of Article 4 of the UCC is:

a. to detail the law governing the requirements for negotiability.

b. to establish a framework for banking relationships.

c. to create rules for governing the transfers of inventory.

d. to provide rules governing contracts for the lease of goods.

Answers:

a. Incorrect. The requirements for negotiability are set forth in Article 3 of the UCC.

b. Correct. Article 4 of the UCC deals with banks and their relationships with their customers and with other banks.

c. Incorrect. This describes the provisions of Article 6 of the UCC.

d. Incorrect. This describes Article 2A of the UCC.

2. If Sandra, making her monthly payment on her student loan, writes a check payable to the U.S. Department of Education (DOE), the DOE is which of the following with respect to this check?

a. The drawee, because it has guaranteed payment.

b. The drawer, because it will draw funds from Sandra’s checking account.

c. The payee, because it is the party being paid.

d. The depositary bank, because it is the first institution to receive the check.

Answers:

a. Incorrect. Sandra’s bank is the drawee, not the DOE.

b. Incorrect. Sandra is the drawer, not the DOE.

c. Correct. The DOE is the payee because it is the party being paid.

d. Incorrect. The DOE is not a bank but a government agency.

3. When a bank draws a check on itself, this is known as:

a. a transferor check.

b. a certified check.

c. a cashier’s check.

d. a certificate of deposit.

Answers:

a. Incorrect. There is no such thing as a transferor check.

b. Incorrect. A certified check is one that has been accepted in writing by the bank on which it is drawn.

c. Correct. When a bank draws a check on itself, this is a cashier’s check.

d. Incorrect. A certificate of deposit is not a check.

4. When a customer writes a check on his or her account, what kind of legal relationship arises between the bank and the customer?

a. A tort relationship.

b. A secured transaction relationship.

c. An agency relationship.

d. A sales relationship.

Answers:

a. Incorrect. Unless the bank or the customer harms each other in some way, no tort relationship arises.

b. Incorrect. Simply writing a check does not create a secured-transaction relationship.

c. Correct. When a customer writes a check, its bank acts as its agent and is obligated to honor the customer’s request.

d. Incorrect. This is not a sales relationship.

5. Lynn loses three checks from her checkbook: #536, #537, and #538. She requests and executes a written stop-payment order with her bank, ordering the bank not to pay these checks. Three months later, her bank pays check #537 in the amount of $1,500, causing Lynn’s account to be overdrawn. In this situation:

a. Lynn is liable for the overdraft.

b. Lynn is liable because the bank paid more than thirty days after the order was written.

c. The bank is liable.

d. Lynn and the bank share liability.

Answers:

a. Incorrect. In this situation, Lynn is not liable.

b. Incorrect. The bank is required to honor the written stop-payment order for six months.

c. Correct. The bank is liable because it should not have paid check #537.

d. Incorrect. Lynn does not share liability in this case.

6. A drawer may be liable for a forged check if:

a. the drawer’s exercise of due care contributed to the loss.

b. the drawer’s negligence contributed to the loss.

c. the drawer forged his or her own name on the check.

d. the drawer’s uncle forged the check.

Answers:

a. Incorrect. If the drawer exercised due care, the drawer would not have contributed to the loss and would not be liable.

b. Correct. If the drawer’s negligence substantially contributed to the forgery, the drawer will be liable.

c. Incorrect. If the drawer signed his or her own name on the check, it was not a forgery.

d. Incorrect. This would not necessarily make the drawer liable.

7. The Federal Reserve System, which clears many checks in the United States, is:

a. a state system.

b. a network of twelve district banks located around the United States and headed by the Federal Reserve Board of Governors.

c. a private banking system.

d. an investment house that clears and truncates checks.

Answers:

a. Incorrect. The Federal Reserve System is a federal, not a state, system.

b. Correct. The Federal Reserve is a network of twelve district banks located around the United States and headed by the Federal Reserve Board of Governors.

c. Incorrect. The Federal Reserve is a public, not a private, banking system.

d. Incorrect. The Federal Reserve is not an investment house.

8. The Electronic Fund Transfer Act states that you will only be liable for $50 if someone steals your debit card, as long as:

a. you report the theft within thirty days of discovering it.

b. you report the theft within one week of discovering it.

c. you report the theft within sixty days of discovering it.

d. you report the theft within two days of discovering it.

Answers:

a. Incorrect. You do not have this much time to report the theft.

b. Incorrect. You do not have this much time to report the theft.

c. Incorrect. You do not have this much time to report the theft.

d. Correct. You must report the theft within two days of discovering it to limit your liability to $50; otherwise, your liability will increase.

9. Which of the following would not be considered an online banking service?

a. Bill consolidation and payment.

b. Transferring funds among accounts.

c. Cashing checks.

d. Applying for loans.

Answers:

a. Incorrect. This is a commonly provided online banking service.

b. Incorrect. This is a commonly provided online banking service.

c. Correct. This is not an online banking service, for you cannot receive “cold, hard cash” via the Internet.

d. Incorrect. This is a commonly provided online banking service.

10. In 2001, the National Conference of Commissioners on Uniform State Laws proposed to the states for adoption a new uniform law that would subject online and e-money services to the same regulations that apply to other, traditional financial service businesses. This new law is known as:

a. the Uniform Money Services Business Act.

b. the Uniform Electronic Funds Act.

c. the Uniform E-Money Act.

d. the Uniform Negotiable Instruments Law.

Answers:

a. Incorrect. There is no Uniform Money Services Business Act.

b. Correct. This is the name of the new law.

c. Incorrect. There is no Uniform E-Money Act.

d. Incorrect. This uniform act was created in 1896 and was eventually replaced by Article 3 of the Uniform Commercial Code.

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