commercial paper and negotiable instruments quiz

Commercial paper and negotiable instruments quiz code#

As in the case of a promissory note, the payee is either a specified individual or the bearer of the draft who is to receive payment according to its terms. The drawer is the individual issuing the order to pay, while the drawee is the party to whom the order to pay is given. If such bonds are cashed in before maturity, the holder receives less than the face value.Ī draft, also known as a bill of exchange, is a three-party paper ordering the payment of money. In certain instances, bonds that are not redeemed immediately upon maturity accumulate interest following the due date and are ultimately worth more than their face value when redeemed at a later time. The interest obtained by the holder of the instrument is the difference between the purchase price and the redemption price. Such an instrument is sold for an amount below its face value and can subsequently be redeemed on the due date or date of maturity for the entire face amount. A number of Consumer Credit dealings are funded through the use of promissory notes.Ĭertain types of promissory notes are sold at a discount, such as U.S. It can be endorsed and sold at a discount to other parties, and each subsequent endorser becomes secondarily liable for the amount specified on the face of the instrument. Promissory notes should not be confused with credit or loan agreements, which are separate instruments that are usually signed at the same time as promissory notes, but which merely describe the terms of the transactions.Ī promissory note serves as documentary evidence of a debt. The ordinary purpose of a promissory note is to borrow money. There is no obligation to pay a time note until the date designated on its face. Such an instrument is said to be bearer paper.Ī promissory note that is payable on demand can be redeemed by the payee at any time, whereas a time note has a date for payment on its face that establishes the date when the holder will have an enforceable right to receive payment under it. A note payable to 'bearer' can be paid to the person who presents it for remuneration. The payee can be either a specifically named individual or merely the bearer of the instrument who has it in his or her physical possession when he or she seeks to be paid according to its terms. The maker is the individual who promises to pay while the payee or holder is the person to whom payment is promised. The most fundamental type of commercial paper is a promissory note, a written pledge to pay money.

The UCC identifies four basic kinds of commercial paper: promissory notes, drafts, checks, and certificates of deposit. Although Louisiana has not enacted all the articles of the UCC, it has adopted article 3.

Commercial paper and negotiable instruments quiz code#

Commercial paper is a specific type of property primarily governed by article 3 of the Uniform Commercial Code (UCC), which is in effect in all 50 states, the District of Columbia, and the Virgin Islands. Since commercial paper constitutes Personal Property, it is transferable by sale or gift and can be loaned, lost, stolen, and taxed. The terms commercial paper and negotiable instrument can be used interchangeably. One of the most significant aspects of commercial paper is that it is negotiable, which means that it can be freely transferred from one party to another, either through endorsement or delivery. A written instrument or document such as a check, draft, promissory note, or a certificate of deposit, that manifests the pledge or duty of one individual to pay money to another.Ĭommercial paper is ordinarily used in business transactions, since it is a reliable and expedient means of dealing with large sums of money and minimizes the risks inherent in using cash, such as the increased possibility of theft.