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NEGOTIABLE
INSTRUMENTS
5.1
5.2
5.3
5.4
5.5
Slide 1
Lesson 5.1
TYPES OF
NEGOTIABLE
INSTRUMENTS
GOALS
Slide 2
South-Western Publishing
NEGOTIABLE
NEGOTIABLE INSTRUMENTS
INSTRUMENTS
What is negotiable?
Negotiable means transferable.
The negotiation that goes on refers to the transfer of the
instrument between two people, or from one bank to another,
or even from one country to another.
What is an instrument?
In the broadest sense, almost any agreed-upon medium of
exchange could be considered a negotiable instrument.
In day-to-day banking, a negotiable instrument usually refers
to checks, drafts, bills of exchange, and some types of
promissory notes.
Slide 3
South-Western Publishing
FORMS
FORMS OF
OF NEGOTIABLE
NEGOTIABLE INSTRUMENTS
INSTRUMENTS
A negotiable instrument is a written order
promising to pay a sum of money.
It may be a bearer instrument, which is payable
to the bearer, or it may be an instrument with
highly specified terms.
Slide 4
South-Western Publishing
CHECKS
CHECKS
Most common form of negotiable instrument
Preferred method of payment for many debts
Offer convenience, safety, and a record of
transactions
Slide 5
South-Western Publishing
STANDARD
STANDARD FEATURES
FEATURES OF
OF PERSONAL
PERSONAL CHECKS
CHECKS
Check Number
Maria Mills
12 River Street
Pettisville, OH 43553-0177
Date Date
Pay to the
order of
Payee
Amount
Pettisville Bank
Pettisville, Ohio
56-25
412
$ Amount
Dollars
For Memo
000801
801
041200257
103
7943
South-Western Publishing
DRAFTS
DRAFTS
A draft is a three-party instrument similar to a check.
A draft is 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.
The payment may be at sight or at some defined time.
Most drafts are used for the purchase of goods and
services when the transaction goes beyond the bounds
of U.S. banking law.
Slide 7
South-Western Publishing
BILLS
BILLS OF
OF EXCHANGE
EXCHANGE
A bill of exchange is a negotiable and
unconditional written order, such as a check, draft,
or trade agreement, addressed by one party to
another.
The receiver of the bill must pay the specified
sum or deliver specified goods on demand or at a
specified time.
Bills of exchange are a common form of
internationally negotiable instruments.
Slide 8
South-Western Publishing
PROMISSORY
PROMISSORY NOTES
NOTES
A promissory note is a written promise to pay at a
fixed or determinable future time a sum of money to
a specified individual.
These two-party instruments are legally binding
documents with many specified terms that vary
widely.
Commercial paper, a short-term (270 days or fewer)
note or daft issued by a corporation or government,
is a common investment instrument.
Slide 9
South-Western Publishing
Lesson 5.2
PRESENTING CHECKS
FOR PAYMENT
GOALS
Slide 10
South-Western Publishing
ELEMENTS
ELEMENTS OF
OF NEGOTIABILITY
NEGOTIABILITY
Written
Signature
Unconditional promise or order
Sum certain
Payable on demand or at a defined time
Words of negotiation
Slide 11
South-Western Publishing
TYPES
TYPES OF
OF ENDORSEMENT
ENDORSEMENT
Blank endorsement
Restrictive endorsement
Full endorsement
Qualified endorsement
Slide 12
South-Western Publishing
IDENTIFICATION
IDENTIFICATION AND
AND CHECK
CHECK ACCEPTANCE
ACCEPTANCE
Slide 13
South-Western Publishing
Lesson 5.3
PROCESSING
CHECKS
GOALS
Slide 14
South-Western Publishing
THE
THE CHECK
CHECK PAYMENT
PAYMENT SYSTEM
SYSTEM
Federal Reserve Act of 1913
Uniform Commercial Code of 1958
Expedited Funds Availability Act of 1987
Slide 15
South-Western Publishing
CHECK
CHECK PAYMENT
PAYMENT AND
AND PROCESSING
PROCESSING
Drawer
Payee
A National Bank
B National Bank
Federal Reserve
(or other intermediary)
Slide 16
South-Western Publishing
Lesson 5.4
CHANGING FORMS
OF PAYMENTS
GOALS
Slide 17
South-Western Publishing
CONSUMER
CONSUMER PAYMENTS
PAYMENTS
Charge cards
Credit cards
Cash cards
Debit cards
Smart cards
Slide 18
South-Western Publishing
CHARGE
CHARGE CARDS
CARDS
With a charge card, a consumer makes purchases but
must pay the account in full at the end of the month.
Charge cards, in effect, lend the amount of purchases
for a month.
Originally 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.
Slide 19
South-Western Publishing
CREDIT
CREDIT CARDS
CARDS
Credit cards allow consumers to pay all or part
of their bills each month and finance the unpaid
balance.
Using a credit card involves two banksthe
bank that issued the card and the retailers bank.
Slide 20
South-Western Publishing
STEPS
STEPS IN
IN CREDIT
CREDIT CARD
CARD PURCHASE
PURCHASE
A consumer uses a credit card.
The retailer sends the credit slip to its own bank.
The retailers bank pays the retailer, records the
transaction, and sends credit slip to a clearing
system.
The clearing system routes the credit slip to the
issuing bank.
The issuing bank pays the retailers bank and
collects from the consumer.
Slide 21
South-Western Publishing
CASH
CASH CARDS
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).
Slide 22
South-Western Publishing
DEBIT
DEBIT CARDS
CARDS
Debit cards transfer money from a persons
designated account to the account of the retailer.
A debit card allows an immediate point-of-sale
(POS) transaction.
Slide 23
South-Western Publishing
SMART
SMART CARDS
CARDS
Smart cards are 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.
Slide 24
South-Western Publishing
FUTURE
FUTURE PAYMENT
PAYMENT SYSTEMS
SYSTEMS
E-checks
Electronic tokens
Slide 25
South-Western Publishing
BANK
BANK PAYMENTS
PAYMENTS
Electronic funds transfer (EFT)
Direct deposit
Automatic payments
Slide 26
South-Western Publishing
THE
THE LEADING
LEADING EDGE
EDGE
Digital imaging
Electronic check presentment (ECP)
Slide 27
South-Western Publishing
Lesson 5.5
SECURITY ISSUES
GOALS
Slide 28
South-Western Publishing
SECURITY
SECURITY ISSUES
ISSUES IN
IN BANKING
BANKING
Physical security
Technology security
Fraud
Slide 29
South-Western Publishing
PHYSICAL
PHYSICAL SECURITY
SECURITY
Building design
Surveillance and alarm technology
Employee training
Transportation security
Slide 30
South-Western Publishing
TECHNOLOGY
TECHNOLOGY SECURITY
SECURITY
Security technology
Physical security
Administrative policies
Slide 31
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FRAUD
FRAUD
Check fraud
Credit card fraud
Loan fraud
Slide 32
South-Western Publishing
FRAUD
FRAUD PREVENTION
PREVENTION
Bank administration
Employee training
Consumer education
Slide 33
South-Western Publishing
CONSUMER
CONSUMER TIPS
TIPS
Use checks with built-in security features.
Do not have your social security number printed on
checks.
Do not endorse a check until just before you cash or
deposit it.
Do not leave spaces on checks.
Reconcile your account regularly.
Shred documents.
Be careful on the telephone, in person, and on the Web.
Slide 34
South-Western Publishing