Slide 11

NEGOTIABLE INSTRUMENTS

5.15.1 Types of Negotiable Instruments5.2 Presenting Checks for Payment5.3 Processing Checks5.4 Changing Forms of Payments5.5 Security Issues

55

Slide 22

Lesson 5.1

TYPES OF NEGOTIABLE INSTRUMENTS

Define the term negotiable instrument

Identify different types of negotiable instruments

GOALSGOALS

Slide 33

NEGOTIABLE INSTRUMENTSNEGOTIABLE INSTRUMENTSNEGOTIABLE INSTRUMENTSNEGOTIABLE 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 44

FORMS OF NEGOTIABLE INSTRUMENTSFORMS OF NEGOTIABLE INSTRUMENTSFORMS OF NEGOTIABLE INSTRUMENTSFORMS OF NEGOTIABLE 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 55

CHECKSCHECKSCHECKSCHECKS

Most common form of negotiable instrumentPreferred method of payment for many debtsOffer convenience, safety, and a record of

transactions

Slide 66

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

Slide 77

DRAFTSDRAFTSDRAFTSDRAFTS

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 88

BILLS OF EXCHANGEBILLS OF EXCHANGEBILLS OF EXCHANGEBILLS OF 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 99

PROMISSORY NOTESPROMISSORY NOTESPROMISSORY NOTESPROMISSORY 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 1010

Lesson 5.2

PRESENTING CHECKS FOR PAYMENT

Identify bank requirements for honoring checksList common forms of check endorsements

GOALSGOALS

Slide 1111

ELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITY

WrittenSignatureUnconditional promise or orderSum certainPayable on demand or at a defined timeWords of negotiation

Slide 1212

TYPES OF ENDORSEMENT TYPES OF ENDORSEMENT TYPES OF ENDORSEMENT TYPES OF ENDORSEMENT

Blank endorsementRestrictive endorsementFull endorsementQualified endorsement

Slide 1313

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 noncustomers.

Slide 1414

Lesson 5.3

PROCESSING CHECKS

Identify three key laws that make today’s check-clearing process possibleExplain the sequence of events as a check is processed for payment

GOALSGOALS

Slide 1515

THE CHECK PAYMENT SYSTEMTHE CHECK PAYMENT SYSTEMTHE CHECK PAYMENT SYSTEMTHE CHECK PAYMENT SYSTEM

Federal Reserve Act of 1913Created a national check collection system and

other rules of paymentUniform Commercial Code of 1958

Established a consistent code for commercial law transactions

Expedited Funds Availability Act of 1987Was passed to comabt an abuse of the check

payment system practiced by a few banks (floating)

Slide 1616

CHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSING

Drawer Payee

A National Bank B National Bank

Federal Reserve(or other intermediary)

Slide 1717

Lesson 5.4

CHANGING FORMSOF PAYMENTS

List modern forms of payment systemsExplain how banks and other financial institutions use automated forms of payment

GOALSGOALS

Slide 1818

CONSUMER PAYMENTSCONSUMER PAYMENTSCONSUMER PAYMENTSCONSUMER PAYMENTS

Charge cardsCredit cardsCash cardsDebit cardsSmart cards

Slide 1919

CHARGE CARDSCHARGE CARDSCHARGE CARDSCHARGE 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 2020

CREDIT CARDSCREDIT CARDSCREDIT CARDSCREDIT 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 banks—the bank that issued the card and the retailer’s bank.

Slide 2121

STEPS IN CREDIT CARD PURCHASESTEPS IN CREDIT CARD PURCHASESTEPS IN CREDIT CARD PURCHASESTEPS IN CREDIT CARD PURCHASE

A consumer uses a credit card.The retailer sends the credit slip to its own bank.The retailer’s 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 retailer’s bank and collects from the consumer.

Slide 2222

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).

Slide 2323

DEBIT CARDSDEBIT CARDSDEBIT CARDSDEBIT CARDS

Debit 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.

Slide 2424

SMART CARDSSMART CARDSSMART CARDSSMART 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 2525

FUTURE PAYMENT SYSTEMSFUTURE PAYMENT SYSTEMSFUTURE PAYMENT SYSTEMSFUTURE PAYMENT SYSTEMS

E-checksElectronic tokens

Slide 2626

BANK PAYMENTSBANK PAYMENTSBANK PAYMENTSBANK PAYMENTS

Electronic funds transfer (EFT)Direct depositAutomatic payments

Automated clearing houses (ACHs)Online transfers

FedwireClearing House Interbank Payment System (CHIPS)

Slide 2727

THE LEADING EDGETHE LEADING EDGETHE LEADING EDGETHE LEADING EDGE

Digital imagingElectronic check presentment (ECP)

Slide 2828

Lesson 5.5

SECURITY ISSUES

Identify security issues that banks faceList ways that banks and other financial institutions can combat fraud

GOALSGOALS

Slide 2929

SECURITY ISSUES IN BANKINGSECURITY ISSUES IN BANKINGSECURITY ISSUES IN BANKINGSECURITY ISSUES IN BANKING

Physical securityTechnology securityFraud

Slide 3030

PHYSICAL SECURITYPHYSICAL SECURITYPHYSICAL SECURITYPHYSICAL SECURITY

Building designSurveillance and alarm technologyEmployee trainingTransportation security

Slide 3131

TECHNOLOGY SECURITYTECHNOLOGY SECURITYTECHNOLOGY SECURITYTECHNOLOGY SECURITY

Security technology Physical securityAdministrative policies

Slide 3232

FRAUDFRAUDFRAUDFRAUD

Check fraud: Counterfeit and forged checksCredit card fraud: Identity fraud, forgeries and

scamsLoan fraud: Obtain loans the will never be

collected

Slide 3333

FRAUD PREVENTIONFRAUD PREVENTIONFRAUD PREVENTIONFRAUD PREVENTION

Bank administrationEmployee trainingConsumer education

Slide 3434

CONSUMER TIPSCONSUMER TIPSCONSUMER TIPSCONSUMER 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.