Presentation on theme: "Chapter 29 Commercial Paper"— Presentation transcript:
1Chapter 29 Commercial Paper Promissory NotesDraftsChapter 29 Commercial PaperCertificateofDepositChecks
2I. What is Commercial Paper? A. Commercial Paper - unconditional written orders or promises to pay moneyB. Uniform Commercial Code (UCC) - laws governing use of commercial paperC. Not valid if used in illegal transactions, such as gamblingB. Banks are the debtors of the depositors
3II. Types of Commercial Paper? $ Unconditional Ordersa. Draftsb. Checks$ Unconditional Promisesa. Promissory Noteb. Certificate of Deposit**Unconditional-does not depend on any other event
4II. Types of Commercial Paper? A. Drafts - unconditional written order by one person that directs another person to pay money to a third, pg. 533.1. Drawer - executes draft2. Drawee - party ordered to pay draft3. Payee - party the commercial paper is made payable4. Sight Draft - pay when draft is presented5. Time Draft - set date, days or months after sight**Picture of Draft will be on the test & you must identify the different parts.
5II. Types of Commercial Paper? B. Checks - bank depositor orders the bank to pay money, usually to a third party, pg. 534.Drawee - must be a bankChecks on special forms magnetically encoded1. Honor & DishonorBank must honor if depositor has sufficient fundsDishonor - insufficient funds and is a crime2. Stop Payment Order - check lost or stolen, drawer directs bank not to pay it.Oral - 2 weeks Written - 6 months3. Precautions & Care – Write checks so they can’t be altered
6II. Types of Commercial Paper? C. Promissory Notes - unconditional written promise by a person(s) to pay money according to the payee’s order, pg. 535.1. Payment - on demand or definite time on face of note2. Maker - executes the note3. Security:Collateral Note - personal prop.Mortgage Note - real property*Picture of Promissory Note will be on the test & you must identify the different parts.Personal PropertyorReal Property?
7II. Types of Commercial Paper? D. Certificate of Deposit (CD) - a bank’s written acknowledgement of the receipt of money with an unconditional promise to repay it at a definite future time with interest, pg. 536.1. By federal law, banks are prohibited from paying out CD’s before maturity without penalty.2. Higher interest rates than saving or checking
8I. Specialized Forms of Commercial Paper A. Certified Check - banks draws funds from the depositor’s account & sets aside in a special account in order to pay the check when presented.A. Front of check marked “accepted” or “certified” along with date & authorized signature of the bank.B. Teller’s Check - a draft drawn by a bank on funds that it has on deposit at another bank.A. Used when substantial sum is involved.
9I. Specialized Forms of Commercial Paper C. Cashier’s Check - a check that a bank draws on itself, pg. 537.1. Banks used to pay own obligations2. Purchased from persons that do not have checking account or impractical to use personal checks3. Risk free, only bank can stop paymentD. Money Orders - used by persons who do not have checking accountsa. Draft issued by post office, bank, express co. or telegraph co. for use in paying or transferring funds for the purchases.
10I. Specialized Forms of Commercial Paper E. Traveler’s Checks - draft drawn by a well-known financial institution on itself or agenta. Travelers wary of caring a lot of cashb. Retailers/Hotels reluctant to take out-of-town checksc. Signed when purchased & signed again when write check in presence of payeed. Payee compares two signatures