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Chapter 29 Commercial Paper

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1 Chapter 29 Commercial Paper
Promissory Notes Drafts Chapter 29 Commercial Paper Certificate of Deposit Checks

2 I. What is Commercial Paper?
A. Commercial Paper - unconditional written orders or promises to pay money B. Uniform Commercial Code (UCC) - laws governing use of commercial paper C. Not valid if used in illegal transactions, such as gambling B. Banks are the debtors of the depositors

3 II. Types of Commercial Paper?
$ Unconditional Orders a. Drafts b. Checks $ Unconditional Promises a. Promissory Note b. Certificate of Deposit **Unconditional-does not depend on any other event

4 II. 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 draft 2. Drawee - party ordered to pay draft 3. Payee - party the commercial paper is made payable 4. Sight Draft - pay when draft is presented 5. Time Draft - set date, days or months after sight **Picture of Draft will be on the test & you must identify the different parts.

5 II. 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 bank Checks on special forms magnetically encoded 1. Honor & Dishonor Bank must honor if depositor has sufficient funds Dishonor - insufficient funds and is a crime 2. Stop Payment Order - check lost or stolen, drawer directs bank not to pay it. Oral - 2 weeks Written - 6 months 3. Precautions & Care – Write checks so they can’t be altered

6 II. 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 note 2. Maker - executes the note 3. 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 Property or Real Property?

7 II. 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

8 I. 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.

9 I. 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 obligations 2. Purchased from persons that do not have checking account or impractical to use personal checks 3. Risk free, only bank can stop payment D. Money Orders - used by persons who do not have checking accounts a. Draft issued by post office, bank, express co. or telegraph co. for use in paying or transferring funds for the purchases.

10 I. Specialized Forms of Commercial Paper
E. Traveler’s Checks - draft drawn by a well-known financial institution on itself or agent a. Travelers wary of caring a lot of cash b. Retailers/Hotels reluctant to take out-of-town checks c. Signed when purchased & signed again when write check in presence of payee d. Payee compares two signatures

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