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[Objective GK for Banking Examinations] Negotiable Instruments Quiz-1

1. Satish sold goods on credit to Ajay and make Bill of Exchange and gives to Ajay. Ajay accepted it and signed his assent on the face of the bill. In this case, Satish and Ajay are__:
[A]Drawee & Drawer
[B]Drawer & Drawee
[C]Acceptor & Drawee
[D]None of the above

Answer

Drawer & Drawee
Drawer is the one who draws the bill upon the buyer / debtor and Drawee is the purchaser of goods upon whom the Bill of Exchange is drawn.

2. Which of the following sections of the NI Act 1881 defines “Negotiable Instrument”?
[A]Sec 11
[B]Sec 12
[C]Sec 13
[D]Sec14

Answer

Sec13
As per section 13 of the Negotiable Instruments Act, 1881, a negotiable instrument means a promissory note , bill of exchange or a cheque , payable either to order or to bearer.

3. Which of the following sections of the NI Act 1881 defines “Promissory Note”?
[A]Section 2
[B]Section 4
[C]Section 5
[D]Section 7

Answer

Section 4
As per section 4 of the Negotiable Instruments Act, 1881, an instrument in writing containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain person or to the bearer of instrument is called Promissory note.

4. How many parties primarily involved in a Promissory Note ?
[A]Two
[B]Three
[C]Four
[D]Five

Answer

Two
The Maker / Drawer and the Drawee / Payee are primarily two parties involved in a Promissory Note.

5. When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may, within a reasonable time, cause such dishonour to be noted and certified by__:
[A]Notary
[B]Magistrate
[C]Collector of that region
[D]All true

Answer

Notary
When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may, within a reasonable time, cause such dishonour to be noted and certified by a notary public. Such certificate is called a protest.

6. Which of the following are the types of endorsement?
a. General endorsement
b. Special endorsement
c. Sans recourse endorsement
d. Unconditional endorsement
e. Full endorsement
Select the correct option from the codes given below:
[A]a, c, d & e
[B]a, b, c & e
[C]b, c, d & e
[D]a, b, d & e

Answer

a, b, c & e
The term endorsement means writing the name of the person on the back of the instrument to negotiate the instrument in favour of that person. The types of endorsements are general, special, sans recourse, conditional endorsement, partial, full, etc.

7. In which type of endorsement, the endorser limits his liability for dishonour of the instrument towards any subsequent holder by writing the words “Sans recourse” or “without recourse to me” after the name of the endorsee?
[A]Sans recourse endorsement
[B]Sans frais endorsement
[C]Facultative endorsement
[D]Restrictive endorsement

Answer

Sans recourse endorsement
In Sans recourse endorsement, the endorser limits his liability for dishonour of the instrument towards any subsequent holder by writing the words “Sans recourse” or “without recourse to me” after the name of the endorsee.

8. When an endorser abandons or gives up some rights or increases his own liability under the instrument by express words, then it is which type of endorsement?
[A]Faculative endorsement
[B]Restrictive endorsement
[C]Special endorsement
[D]Blank endorsement

Answer

Faculative endorsement
When an endorser abandons or gives up some rights or increases his own liability under the instrument by express words, then it is faculative endorsement.

9. A cheque can be crossed by the
[A]Drawer
[B]Holder
[C]Collecting banker
[D]Either a or b or c

Answer

Either a or b or c
The crossing of a cheque means paying the money to the specified person only by transferring the money to his account and not directly (cash). It can be crossed by the drawer or the holder (when the cheque is open) or the collecting banker.

10. Which among the following is / are the characteristics of the Negotiable instruments?
1. Payable either to order or bearer
2. Every holder of negotiable instrument is presumed to be holder in due course
3. A holder in due course gets the instrument free from all defects in the title of transferor
Choose the option:
[A]Only 1
[B]1 & 2
[C]2 & 3
[D]All of the above

Answer

All of the above
The essential characteristics of a negotiable instrument are:
1. Payable to order or bearer. It must be payable either to order or bearer.
2. An instrument payable to order is negotiable by endorsement and delivery, and an instrument payable to bearer is negotiable by mere delivery.
3. Every holder of negotiable instrument is presumed to be holder in due course.
4. A holder in due course gets the instrument free from all defects in the title of transferor.
5. Every negotiable instrument is presumed to have been made, drawn, accepted, endorsed, negotiated or transferred for consideration.

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