Management and Organizational Studies 2275A/B Study Guide - Negotiable Instrument, Debit Card, Promissory Note

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CHAPTER 25: BUSINESS AND BANKING
CHAPTER 25
BUSINESS AND BANKING
Objectives
After studying this chapter, you should have an understanding of:
the relationship between a business and its bank
the legal framework of negotiable instruments
the rights and obligations of those connected with negotiable instruments
the legal challenges involved in electronic banking and payment options
Learning Outcomes
Understand the regulation of banks (page 640)
Understand the duties of the bank to the customer (page 641)
Understand the duties of the customer to the bank (page 642)
Understand the bank-customer relationship (page 642)
Understand the risk of the person writing a cheque (page 646)
Understand the risk of the person accepting a cheque (page 647)
Understand the role of the bank in cashing cheques (page 648)
Recognize the risks associated with electronic banking (page 650)
Compare the risks of each method of accepting payment (page 654)
Chapter Summary
Customers should be wary of their relationship with their banks, not because bank’s attempt
to take advantage of them, but because the relationship is a contractual one. The rights and
obligations are found in the contract, and because the bank’s write the contracts, the language
tends to favour the bank’s interests more than those of their customers. The chief effect of a
banking contract is to transfer risk from the bank to the customer. If the customer
appreciates this reality, her level of disappointment, frustration, and financial loss is likely to
be less than if her expectations of the bank are unrealistic. The established system for
negotiable instruments focuses on the commercial convenience of instruments circulating
freely, with little need for the various holders to be concerned about their validity as long as
the requirements for negotiability are met. It is a paper-based system that places prime
importance on the piece of paper and the secure status of those in possession of it. The
primary right is the ability of a holder in due course to collect from the creator of the
instrument the person whose promise to pay originated the transaction. The main
obligation is that of the creator or drawer of the instrument to pay, regardless of events that
preceded or followed the creation of the instrument. The instantaneous nature of electronic
transactions greatly improves efficiency, but it also makes the transfers irrevocable. The
absence of paper and the inapplicability of the rules that govern paper transactions create
major challenges for security and liability.
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PART 8: FINANCING THE BUSINESS
Copyright © 2011 by Nelson Education Ltd.
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CHAPTER 25: BUSINESS AND BANKING
Study Outline
Use this outline to prepare a complete set of notes for this chapter.
The Banking Relationship – page 640
_______________________________________________________________________
_______________________________________________________________________
Regulation of banks_______________________________________________________
_______________________________________________________________________
The bank-customer agreement_______________________________________________
_______________________________________________________________________
Duties of the bank and the customer__________________________________________
_______________________________________________________________________
The bank-customer relationship______________________________________________
_______________________________________________________________________
Negotiable Instruments – page 643
_______________________________________________________________________
_______________________________________________________________________
Cheques_____________________________________________________________
Promissory notes_________________________________________________________
Bill of exchange__________________________________________________________
Negotiable instruments____________________________________________________
Steps in the cheque circulation process________________________________________
_______________________________________________________________________
Implications of creating a cheque____________________________________________
_______________________________________________________________________
Comparison of payment and collection arrangements_____________________________
_______________________________________________________________________
Implications of accepting a cheque___________________________________________
_______________________________________________________________________
Certification__________________________________________________________
Stop payment_________________________________________________________
Endorsements_________________________________________________________
_______________________________________________________________________
Electronic Banking – page 650
_______________________________________________________________________
_______________________________________________________________________
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