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Payments. Banking & Finance. Bellringer. Online Chapter 9 Pretest Activity: 3 minutes. You want to buy a new book or video game. Depending on where you buy the item from, what are your payment options?. Negotiable Instruments. Define a negotiable instrument

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Banking & Finance

  • Online Chapter 9 Pretest
activity 3 minutes
Activity: 3 minutes
  • You want to buy a new book or video game. Depending on where you buy the item from, what are your payment options?
negotiable instruments
Negotiable Instruments
  • Define a negotiable instrument
  • Compare and contrast types of negotiable instruments
what is a negotiable instrument
What Is a Negotiable Instrument?
  • Transferrable, signed document that represents the promise to pay a specific amount of money in the future or on demand
  • Easier to transport
  • More convenient than cash for large purchases
  • Proof that payment was made
elements of a negotiable instrument
Elements of aNegotiable Instrument
  • Authorized signature
  • Specific amount
  • Unconditional promise to pay
  • Payment date
  • Payee
what is the bank s role
What is the bank’s role?
  • Negotiable instrument is created by a maker
  • Maker (drawer) signs to validate it
  • Maker authorizes withdrawal of cash
  • Drawee (party who pays) is the bank
  • What elements must be in a negotiable instrument?
  • If a date is not specified in a negotiable instrument, when is it paid?
types of negotiable instruments
Types of Negotiable Instruments



Written order directing a bank to pay a specific amount from deposited funds

Traveler’s checks

Money order

Cashier’s check

  • Orders of directs a payment to be made
  • Payees name
  • “pay to the order of”


types of negotiable instruments1
Types of Negotiable Instruments

Bills of Exchange


Promissory Note: commercial version of an I owe you (IOU)

Certificate of Deposit: bank is the maker

  • Contains an unconditional order to pay a specific amount of money to the payee
  • Used in commerce, particularly international trade


  • What are the two types of negotiable instruments?
  • How is a money order different from a traveler’s check?
  • Why is a CD considered a negotiable instrument from the bank’s perspective?
small group activity 3 minutes
Small Group Activity: 3 minutes
  • Who is responsible for making sure a negotiable instrument is valid?
  • Prepare to share.
using checks
Using Checks
  • List the characteristics of a checking account
  • Describe the elements of a check
  • Distinguish between the common endorsement types
  • Explain how checks are processed
checking accounts
Checking Accounts
  • Main purpose: ability to withdraw funds from a bank account by writing checks
  • Pay little or no interest
  • Liquidity is high
  • For consumers and commercial businesses
endorsements via video
Endorsements via Video

Take notes on next 3 slides


Honoring a check







Aba Routing Number


processing a check
Processing a Check
  • Clearing: process of approving a check and transferring funds from one account to another
  • Used to take several days
processing a check back in the day
Processing a CheckBack in the Day
  • Drawer wrote the check and gave it to payee
  • Payee endorsed check and presented to bank
  • Payee’s bank mailed check to drawer’s bank
  • Drawer’s bank sent payment to payee’s bank
  • Cancelled check, cleared check, returned to drawer
processing a check today
Processing a Check TODAY
  • Automated clearinghouse (ACH): system that processes checks
    • Drawer writes check and gives to payee
    • Payee endorses check and presents to bank
    • Bank sends image of check to the ACH
    • ACH transfers funds from drawer’s account to the payee’s account
processing a check1
Processing a Check
  • Many banks no longer return cancelled checks
    • Substitute check: paper copy of front and back of original check
    • Images of checks and deposits viewed online
research activity legal influences
Research Activity:Legal Influences
  • Red Cups: Federal Reserve Act of 1913
  • Blue Cups: Uniform Commercial Code of 1952
  • Yellow Cups: Expedited Funds Availability Act of 1987
  • Green Cups: Check Clearing Act for the 21st Century of 2004 aka Check 21 (image replacement document—IRD)

Your group will provide 5 facts

on the assigned legal development.

  • How is the drawee identified on a check?
  • Which type of endorsement is the least safe? Explain.
  • What is the purpose of a third-party endorsement?
  • What two steps did ACHs remove from the check-processing procedure?
  • How did IRDs remove bank and customer concerns about the use of electronic records?
  • List and describe the 3 types of endorsements.
small group activity 3 minutes1
Small Group Activity: 3 minutes
  • Think of things for which you can prepay.
  • Prepare to share.
other payment systems
Other Payment Systems
  • Define a payment system
  • Describe the common types of electronic funds transfers
  • Explain how cards are used as payment systems
payment systems
Payment Systems
  • Methods of transferring funds without using cash
  • Global trade would grind to a halt with cash only
  • Electronic funds transfer most common
  • Any transfer of funds started by electronic means
automated teller machines
Automated Teller Machines
  • Computerized machine that allows a customer to perform basic banking activities
  • Enter Cash card and PIN, follow prompts to conduct transaction
  • Free unless at a different bank from account
direct deposits
Direct Deposits
  • Funds are added directly into a bank account by electronic means instead of a negotiable instrument being used.
  • 2 advantages
    • Funds are available immediately
    • Safe, eliminates need to transport a check
wire transfers
Wire Transfers
  • Electronic transfer of funds from one location to another
  • Fastest and safest way to transfer
  • Federal Reserve Wire Network (FedWire): Verbal Explanation—write this down!
  • Clearing House Interbank Payment System (CHIPS): privately held, enables major banks around world to transfer funds to each other
automatic payments
Automatic Payments
  • Preauthorized electronic funds sent from a customer’s account to a vendor’s account at regular intervals.
  • Generally for a set amount
bill payment services
Bill-Payment Services
  • Electronic transfer of funds from a customer’s account to a vendor’s account must be requested by the customer or the vendor each time a payment is due.
  • More practical than automatic payments for bills that might vary in amount
  • Credit Cards: used to buy products or services on credit
  • Charge cards: like credit cards, but balance must be paid off monthly
  • Debit cards (check card): enables customer to electronically access funds in account
  • How are ATMs a source of income for the bank?
  • What are two advantages of direct deposit from an employee’s standpoint?
  • How does the Federal Reserve Wire Network participate in wire transfers?
  • What is the difference between automatic payments and a bill-payment service?
  • How is a debit card different from a credit card?
common core listening activity
Common Core Listening Activity
  • View “Jordan Maxwell on the Law of the UCC: Uniform Commercial Code”
  • Write a report in which you summarize the speaker’s point of view, reasoning, use of evidence and rhetoric, word choice, points of emphasis, and tone. How do these contribute to the speaker’s overall message?