copyright south-western, a division of thomson, inc. slide 1 negotiable instruments 5.1 5.1 types of...
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Copyright South-Western, a division of Thomson, Inc. Slide 11
NEGOTIABLE INSTRUMENTS
5.15.1 Types of Negotiable Instruments
5.25.2 Presenting Checks for Payment
5.35.3 Processing Checks
5.45.4 Changing Forms of Payment
55
Copyright South-Western, a division of Thomson, Inc. Slide 22
Lesson 5.1
TYPES OF NEGOTIABLE INSTRUMENTS
Define the term negotiable instrument
Compare and Contrast different types of negotiable instruments
GOALSGOALS
Copyright South-Western, a division of Thomson, Inc. Slide 33
NEGOTIABLE INSTRUMENTSNEGOTIABLE INSTRUMENTSNEGOTIABLE INSTRUMENTSNEGOTIABLE INSTRUMENTS
What is negotiable?Negotiable means transferable – between two
peopleWhat is an instrument?
Any agreed-upon medium of exchange - usually refers to checks, drafts, bills of exchange, promissory notes
Negotiable Instrument – commonly referred to as commercial paper
Copyright South-Western, a division of Thomson, Inc. Slide 44
Commercial PaperCommercial PaperCommercial PaperCommercial Paper
Defined as unconditional written orders or promises to pay money
Checks, drafts, bills of exchange are all considered commercial paper
Legitimacy and use governed by the Uniform Commercial Code (UCC)
May be a bearer instrument or it may be an instrument with highly specified terms
Copyright South-Western, a division of Thomson, Inc. Slide 55
FORMS OF NEGOTIABLE INSTRUMENTSFORMS OF NEGOTIABLE INSTRUMENTSFORMS OF NEGOTIABLE INSTRUMENTSFORMS OF NEGOTIABLE INSTRUMENTS
ChecksDraftsBills of ExchangePromissory Notes
Copyright South-Western, a division of Thomson, Inc. Slide 66
CHECKSCHECKSCHECKSCHECKS
Most common form of negotiable instrumentPreferred method of payment for many debtsOffer convenience, safety, and a record of
transactions
Copyright South-Western, a division of Thomson, Inc. Slide 77
DRAFTSDRAFTSDRAFTSDRAFTS
Three-party instrument – similar to a checkOrder 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.
The payment may be at sight or immediately or at some defined time
Copyright South-Western, a division of Thomson, Inc. Slide 88
BILLS OF EXCHANGEBILLS OF EXCHANGEBILLS OF EXCHANGEBILLS OF EXCHANGE
Negotiable and unconditional written order addressed by one party to another
Receiver of the bill must pay the specified sum or deliver specified goods on demand or at a specified time
Common form of internationally negotiable instrument
Copyright South-Western, a division of Thomson, Inc. Slide 99
PROMISSORY NOTESPROMISSORY NOTESPROMISSORY NOTESPROMISSORY NOTES
Written promise to pay at a fixed or determinable future time a sum of money to a specified individual – legally binding
Two-party instruments - legally binding documents with many specified terms that vary widely
Copyright South-Western, a division of Thomson, Inc. Slide 1010
Specialized Forms of Commercial PaperSpecialized Forms of Commercial PaperSpecialized Forms of Commercial PaperSpecialized Forms of Commercial Paper
Certified CheckPersonal check that has been accepted by the bank
before paymentCashier’s Check
Check bank draws on itselfMoney Order
Draft issued by a post office, bank, or telegraph company
Traveler’s Checks
Copyright South-Western, a division of Thomson, Inc. Slide 1111
Lesson 5.2
PRESENTING CHECKS FOR PAYMENT
Identify elements of negotiability
Identify and explain common forms of check endorsements
GOALSGOALS
Copyright South-Western, a division of Thomson, Inc. Slide 1212
ELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITY
WrittenSignatureUnconditional promise or orderSum certainPayable on demand or at a defined timeWords of negotiation
Copyright South-Western, a division of Thomson, Inc. Slide 1313
ENDORSEMENT ENDORSEMENT ENDORSEMENT ENDORSEMENT
Endorsement of the instrument allows it to be negotiated
Type of endorsementsBlank endorsementRestrictive endorsementSpecial or full endorsementQualified endorsement
Copyright South-Western, a division of Thomson, Inc. Slide 1414
IDENTIFICATION AND CHECK ACCEPTANCEIDENTIFICATION AND CHECK ACCEPTANCEIDENTIFICATION AND CHECK ACCEPTANCEIDENTIFICATION AND CHECK ACCEPTANCE
Banks may require as much or as little identification to cash or deposit a check at they wish
Banks may have different rules for customers and non-customers
Copyright South-Western, a division of Thomson, Inc. Slide 1515
Lesson 5.3
PROCESSING CHECKS
Identify three key laws that make today’s check-clearing process possible
Explain the sequence of events as a check is processed for payment
GOALSGOALS
Copyright South-Western, a division of Thomson, Inc. Slide 1616
THE CHECK PAYMENT SYSTEMTHE CHECK PAYMENT SYSTEMTHE CHECK PAYMENT SYSTEMTHE CHECK PAYMENT SYSTEM
Three key legislative actsFederal Reserve Act of 1913 - Created a national check
collection system and other rules for paymentsUniform Commercial Code of 1958 - Established consistent
code for transactions, adopted by all 50 states, eliminated wide variation of legal regulation that could hamper national payment system
Expedited Funds Availability Act of 1987 - Regulation CC - combat float abuse practiced by some banks
Copyright South-Western, a division of Thomson, Inc. Slide 1717
STANDARD FEATURES OF PERSONAL CHECKSSTANDARD FEATURES OF PERSONAL CHECKSSTANDARD FEATURES OF PERSONAL CHECKSSTANDARD FEATURES OF PERSONAL CHECKS
For simulation use only
Maria Mills12 River StreetPettisville, OH 43553-0177
Pettisville BankPettisville, Ohio
80156-25412
103 7943000801 041200257
$Pay to the order of
Dollars
Date
For
Account NumberAccount Number
Check NumberCheck Number
DateDate
AmountAmountAmountAmount
SignatureSignatureMemoMemo
Identification NumbersIdentification Numbers
PayeePayee
Copyright South-Western, a division of Thomson, Inc. Slide 1818
CHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSING
Drawer - You Payee – Best Buy
Bank of America Wachovia
Federal Reserve(or other intermediary)
Copyright South-Western, a division of Thomson, Inc. Slide 1919
Transit NumberTransit NumberTransit NumberTransit Number
Created in 1910 by the ABA 9 digit number identifies the bank where account
is heldAids in check processing procedurePrinted at the bottom left-hand corner of a checkA/K/A routing number, transit/routing number
and ABA number
Copyright South-Western, a division of Thomson, Inc. Slide 2020
Other TermsOther TermsOther TermsOther Terms
Postdated checkStale checkReturned check – bounced checkNSF check – non-sufficient funds Stop Payment
Copyright South-Western, a division of Thomson, Inc. Slide 2121
Lesson 5.4
CHANGING FORMSOF PAYMENT
Identify modern forms of payment systems
Identify and explain how banks and other financial institutions use automated forms of payment
GOALSGOALS
Copyright South-Western, a division of Thomson, Inc. Slide 2222
CONSUMER PAYMENTSCONSUMER PAYMENTSCONSUMER PAYMENTSCONSUMER PAYMENTS
Charge cardsCredit cardsCash cardsDebit cardsSmart cards
Copyright South-Western, a division of Thomson, Inc. Slide 2323
CHARGE CARDSCHARGE CARDSCHARGE CARDSCHARGE CARDS
Account must be paid in full at the end of the monthCharge cards, in effect, lend the amount of purchases
for a monthOriginally charge cards were store cards, but eventually
third-party companies formed networks of participating businesses to expand the market
American Express is the most prominent national charge card.
Copyright South-Western, a division of Thomson, Inc. Slide 2424
CREDIT CARDSCREDIT CARDSCREDIT CARDSCREDIT CARDS
Consumers allowed to pay all or part of their bills each month and finance the unpaid balance
Using a credit card involves two banks—the bank that issued the card and the retailer’s bank.
Copyright South-Western, a division of Thomson, Inc. Slide 2525
CASH CARDSCASH CARDSCASH CARDSCASH CARDS
Cash cards are commonly used at an automated teller machine (ATM).
Consumers can get cash, make transfers and deposits, or perform other banking functions by inserting the card and entering a personal identification number (PIN).
Copyright South-Western, a division of Thomson, Inc. Slide 2626
DEBIT CARDSDEBIT CARDSDEBIT CARDSDEBIT CARDS
Transfer money from a person’s designated account to the account of the retailer
A debit card allows an immediate point-of-sale (POS) transaction
Consumer swipes card through a magnetic reader, enters a PIN, and authorizes transfer
Copyright South-Western, a division of Thomson, Inc. Slide 2727
SMART CARDSSMART CARDSSMART CARDSSMART CARDS
Credit, debit, or other types of cards with embedded microchips
Microchips store values and use the embedded logic to change values and record transactions
Copyright South-Western, a division of Thomson, Inc. Slide 2828
FUTURE PAYMENT SYSTEMSFUTURE PAYMENT SYSTEMSFUTURE PAYMENT SYSTEMSFUTURE PAYMENT SYSTEMS
E-checksDigitally guaranteed type of electronic check to be
transmitted on the InternetObstacles – security issues and mutual acceptability
networks
Electronic tokensMonetary system based on the exchange of digital
moneyObstacles – counterfeiting and resistance
Copyright South-Western, a division of Thomson, Inc. Slide 2929
BANK PAYMENTSBANK PAYMENTSBANK PAYMENTSBANK PAYMENTS
Electronic funds transfer (EFT)Common form - direct depositAutomatic payments – bank makes payments to specified
recipient (reverse of direct deposits)
Automated clearing houses (ACHs) – magnetic tapes with data exchanged between banks
Online transfersFedwire – run by Fed Reserve, handles transfers for federal
funds, interbank dealings, and securities transactionsClearing House Interbank Payment System (CHIPS)
Copyright South-Western, a division of Thomson, Inc. Slide 3030
THE LEADING EDGETHE LEADING EDGETHE LEADING EDGETHE LEADING EDGE
Digital imagingPotential to save banks millions per year in storage,
record keeping, postage, and labor costs
Electronic check presentment (ECP)Device reads account info from magnetic inkInfo immediately transmitted to the paying bankProcess virtually eliminates bad checks and float