1 / 60

NEGOTIABLE INSTRUMENTS

NEGOTIABLE INSTRUMENTS. 5. 5.1 Types of Negotiable Instruments 5.2 Presenting Checks for Payment 5.3 Processing Checks 5.4 Changing Forms of Payment. 5.1 TYPES OF NEGOTIABLE INSTRUMENTS. GOALS. Define the term negotiable instrument.

eugenewilliamson
Download Presentation

NEGOTIABLE INSTRUMENTS

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. NEGOTIABLE INSTRUMENTS 5 5.1 Types of Negotiable Instruments 5.2Presenting Checks for Payment 5.3Processing Checks 5.4Changing Forms of Payment

  2. 5.1TYPES OF NEGOTIABLE INSTRUMENTS GOALS Define the term negotiable instrument. Identify different types of negotiable instruments.

  3. TERMS • Negotiable instrument • Bearer instrument • Draft • Bill of exchange • Promissory note

  4. NEGOTIABLE INSTRUMENTS • Negotiable instrument • A written order or promise to pay a sum of money, either to a specified party or to the person who holds it

  5. WHAT IS NEGOTIABLE? • Negotiable means transferable. • Endorsing • Transferring the title of a check • Negotiability may be restricted.

  6. WHAT IS AN INSTRUMENT? • Almost any agreed-upon medium of exchange could be considered a negotiable instrument. • In day-to-day banking, a negotiable instrument usually refers more narrowly to checks • Drafts • Bills of exchange • Some types of promissory notes

  7. checkpoint What is a negotiable instrument? What is the most common form of negotiable instrument?

  8. FORMS OF NEGOTIABLE INSTRUMENTS • Bearer instrument • Payable to the bearer (whoever holds it)

  9. CHECKS

  10. DRAFTS • Draft • An order signed by one party (the drawer, or drafter) that is addressed to another party (the drawee) directing the drawee to pay to someone (the payee) the amount indicated on the draft

  11. BILLS OF EXCHANGE • Bill of exchange • A negotiable and unconditional written order addressed by one party to another • Check • Draft • Trade agreement • Often used internationally

  12. PROMISSORY NOTES • Promissory note • A written promise to pay at a fixed or determinable future time a sum of money to a specified individual • Commercial paper • A short-term (270 days or fewer) note or draft issued by a corporation or government

  13. checkpoint List the standard features of a personal check.

  14. 5.2PRESENTING CHECKS FOR PAYMENT GOALS Identify bank requirements for honoring checks. List common forms of check endorsements.

  15. TERMS • Elements of negotiability • Holder in due course • Blank endorsement • Restrictive endorsement • Full endorsement • Qualified endorsement

  16. ELEMENTS OF NEGOTIABILITY • Elements of negotiability • The legal requirements that every check is required to meet • A written, signed, unconditional promise or order to pay a fixed amount on demand or at a defined time to the holder in due course • Holder in due course • This is the person or financial institution that acquires a check or promissory note received in good faith as payment and who is entitled to payment by the drawer of the check or note

  17. WRITTEN • The first requirement for a negotiable instrument is that it must be written. • There is no legally prescribed form for a check.

  18. SIGNATURE • A document must be signed by a person capable of making the order or promise for it to be a negotiable instrument. • A check is not payable if it does not bear the drawer’s genuine signature.

  19. UNCONDITIONAL PROMISE OR ORDER • To be negotiable, an instrument must make an unconditional promise or order to pay.

  20. SUM CERTAIN • A negotiable instrument must state clearly on its face the principal amount to be paid. • It must be a monetary value.

  21. PAYABLE ON DEMAND OR AT A DEFINED TIME • If a negotiable instrument bears no instruction as to when it is due, it is payable on demand. • Immediately

  22. WORDS OF NEGOTIATION • Pay to the order of Keshia Smith • Lets the instrument be negotiated by Keshia Smith with her endorsement or to whomever she may later assign it • Pay to the order of Cash • Makes the instrument a bearer instrument, valuable to anyone who has it regardless of endorsement • Bank representatives check for all six elements of negotiation.

  23. checkpoint What is meant by “elements of negotiability”?

  24. ENDORSEMENT AND IDENTIFICATION • Endorsement • Allows the instrument to be negotiated • Cash back transaction • When you use a check to either get cash or make a partial deposit (and get the remaining balance in cash)

  25. TYPES OF ENDORSEMENT • Blank endorsement (open endorsement) • The signature of the holder • The least secure of the four main types of endorsement • Restrictive endorsement • Limits the use of the instrument to a means specified by the endorser • Split deposit • When a depositor designates that a single check should be divided to have portions of it deposited in different accounts

  26. Full endorsement (special endorsement) • Transfers the check to another specified party • Limits neither the transferability nor the further negotiability of the check • Accommodation endorsement • When a check endorsement involves a bank other than the original bank

  27. Qualified endorsement • An attempt to limit the liability of the endorser without limiting an instrument’s further negotiability

  28. IDENTIFICATION AND CHECK ACCEPTANCE • Check fraud is a serious issue for banks. • To protect against fraud, banks require adequate identification. • Fingerprinting may be required to cash a check.

  29. checkpoint Name the four main types of check endorsement.

  30. 5.3PROCESSING CHECKS GOALS Identify key laws that make today’s check-clearing process possible. Explain the sequence of events as a check is processed for payment.

  31. TERMS • Float • Transit number • Returned check

  32. A NATIONAL SYSTEM OF PAYMENT • Electronic payments and checks are far safer and more convenient than cash for bill payment. • The legal status of electronic payments and checks makes them a dominant force in the economic life of the nation.

  33. THE LEGAL STRUCTURE OF THE CHECK PAYMENT SYSTEM • Federal Reserve Act of 1913 • Uniform Commercial Code of 1958 • Expedited Funds Availability Act of 1987 • Check 21 • Electronic Check Conversion

  34. checkpoint Why does the check processing and collection system depend on the Federal Reserve?

  35. CHECK PAYMENT AND PROCESSING • Correspondent banks • Large private banks that clear checks • Float • When two banks count the same funds • Malfunction float • Caused by machine breakdown

  36. Transportation float • Delays that occur when moving checks from one location to another • Holdover float • When banks are slow in processing transactions

  37. TRANSIT NUMBER • Transit number • A 9-digit number that identifies the bank that holds the checking account and is responsible for payment • Issued to only federal or state chartered financial institutions that are eligible to hold an account at a Federal Reserve Bank

  38. OTHER TYPES OF CHECK PROCESSING • Postdated check • A check that is dated later than the date on which it is actually written • Returned check (bounced check) • A check written on an account that does not have adequate funds to cover it and which is returned unpaid to the person who deposited it

  39. checkpoint What is float? What causes it?

  40. 5.4CHANGING FORMS OF PAYMENT GOALS List modern forms of payment systems. Explain how banks and other financial institutions use automated forms of payment.

  41. TERMS • Charge cards • Credit cards • Cash cards • Debit cards • Smart cards • Person-to-person payments (P2P) • Radio frequency identification (RFID)

  42. CONSUMER PAYMENTS • The growth of varied forms of payment is a product of two phenomena. • The entrepreneurial spirit • Advancing technology

  43. CHARGE CARDS • Charge cards • A consumer purchases but must pay the account in full at the end of the month

  44. CREDIT CARDS • Credit cards • Allow consumers to pay all or part of their bills each month and finance the unpaid balance

  45. CASH CARDS • Cash cards • Are commonly used at an automated teller machine (ATM) • Can be used to perform most banking functions • Personal identification number (PIN)

  46. DEBIT CARDS • Debit cards • Transfer money from a person’s designated account to the account of the retailer • Point-of-sale (POS) transaction

  47. SMART CARDS • Smart cards • Credit, debit, or other types of cards with embedded microchips • The microchips store values and use the embedded logic to change values and record transactions • Electronic purse

  48. BILL PAYMENT SERVICES • There are multiple ways for consumers to streamline the way they pay businesses. • Bill pay option offered by banks • Third party services • Credit card preauthorization for repetitive monthly payments

  49. PERSON-TO-PERSON PAYMENTS (P2P) • Person-to-person (P2P) • Online systems that allow consumers to pay each other directly for a product • Use an Internet platform for payment transfers

More Related