Transcript 5.1 5.2 5.3 5.4 5.5 Slide 1 NEGOTIABLE INSTRUMENTS Types of Negotiable Instruments Presenting Checks for Payment Processing Checks Changing Forms of Payments Security Issues © South-Western Publishing.

5
5.1
5.2
5.3
5.4
5.5
Slide 1
NEGOTIABLE
INSTRUMENTS
Types of Negotiable Instruments
Presenting Checks for Payment
Processing Checks
Changing Forms of Payments
Security Issues
© South-Western Publishing
Lesson 5.1
TYPES OF
NEGOTIABLE
INSTRUMENTS
GOALS
Define the term negotiable instrument
Identify different types of negotiable
instruments
Slide 2
© South-Western Publishing
NEGOTIABLE 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 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 4
© South-Western Publishing
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 FEATURES OF PERSONAL 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 simulation use only
Signature
For Memo
000801
801
041200257
103
7943
Identification Numbers Account Number
Slide 6
© South-Western Publishing
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 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 8
© South-Western Publishing
PROMISSORY 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
Identify bank requirements for honoring
checks
List common forms of check endorsements
Slide 10
© South-Western Publishing
ELEMENTS OF 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 OF ENDORSEMENT
Blank endorsement
Restrictive endorsement
Full endorsement
Qualified endorsement
Slide 12
© South-Western Publishing
IDENTIFICATION 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 13
© South-Western Publishing
Lesson 5.3
PROCESSING
CHECKS
GOALS
Identify three key laws that make today’s
check-clearing process possible
Explain the sequence of events as a check
is processed for payment
Slide 14
© South-Western Publishing
THE CHECK PAYMENT SYSTEM
Federal Reserve Act of 1913
Uniform Commercial Code of 1958
Expedited Funds Availability Act of 1987
Slide 15
© South-Western Publishing
CHECK PAYMENT AND 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
List modern forms of payment systems
Explain how banks and other financial
institutions use automated forms of
payment
Slide 17
© South-Western Publishing
CONSUMER PAYMENTS
Charge cards
Credit cards
Cash cards
Debit cards
Smart cards
Slide 18
© South-Western Publishing
CHARGE 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 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 20
© South-Western Publishing
STEPS 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 21
© South-Western Publishing
CASH 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 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 23
© South-Western Publishing
SMART 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 PAYMENT SYSTEMS
E-checks
Electronic tokens
Slide 25
© South-Western Publishing
BANK PAYMENTS
Electronic funds transfer (EFT)
Direct deposit
Automatic payments
Automated clearing houses (ACHs)
Online transfers
Fedwire
Clearing House Interbank Payment System (CHIPS)
Slide 26
© South-Western Publishing
THE LEADING EDGE
Digital imaging
Electronic check presentment (ECP)
Slide 27
© South-Western Publishing
Lesson 5.5
SECURITY ISSUES
GOALS
Identify security issues that banks face
List ways that banks and other financial
institutions can combat fraud
Slide 28
© South-Western Publishing
SECURITY ISSUES IN BANKING
Physical security
Technology security
Fraud
Slide 29
© South-Western Publishing
PHYSICAL SECURITY
Building design
Surveillance and alarm technology
Employee training
Transportation security
Slide 30
© South-Western Publishing
TECHNOLOGY SECURITY
Security technology
Physical security
Administrative policies
Slide 31
© South-Western Publishing
FRAUD
Check fraud
Credit card fraud
Loan fraud
Slide 32
© South-Western Publishing
FRAUD PREVENTION
Bank administration
Employee training
Consumer education
Slide 33
© South-Western Publishing
CONSUMER 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