Q.1 What is a negotiable instrument?
A document promising payment of money only to a specific person
A written document guaranteeing payment to bearer or order
A contract for the sale of goods
A document giving ownership of property
Explanation - A negotiable instrument is a written document which guarantees payment of a specific amount of money to the bearer or order, making it transferable by endorsement or delivery.
Correct answer is: A written document guaranteeing payment to bearer or order
Q.2 Which of the following is NOT a type of negotiable instrument?
Promissory note
Bill of exchange
Cheque
Lease agreement
Explanation - Lease agreements are contracts for property rental and do not involve the transfer of a promise to pay money; hence, they are not negotiable instruments.
Correct answer is: Lease agreement
Q.3 Who is the drawer of a bill of exchange?
The person who pays the bill
The person who receives the bill
The person who makes the bill payable
The bank endorsing the bill
Explanation - The drawer is the person who creates the bill of exchange and orders the payment to be made by the drawee to the payee.
Correct answer is: The person who makes the bill payable
Q.4 A cheque is always payable on:
A future date only
Demand
Endorsement
Acceptance
Explanation - A cheque is a negotiable instrument that is always payable on demand, unlike a bill of exchange which may be payable at a future date.
Correct answer is: Demand
Q.5 What does 'endorsement' of a negotiable instrument mean?
Signing it to refuse payment
Delivering it to a bank
Signing it to transfer rights to another person
Making it payable on demand
Explanation - Endorsement is the act of signing a negotiable instrument to transfer the right to receive payment to another person.
Correct answer is: Signing it to transfer rights to another person
Q.6 Who is liable to pay in a promissory note?
The drawer
The maker
The payee
The endorsee
Explanation - In a promissory note, the maker is the person who promises to pay a certain amount to the payee or bearer of the note.
Correct answer is: The maker
Q.7 Which section of the Negotiable Instruments Act, 1881 deals with dishonour of cheque for insufficiency of funds?
Section 138
Section 139
Section 140
Section 141
Explanation - Section 138 of the Negotiable Instruments Act deals with the offence and punishment for dishonour of cheque due to insufficient funds.
Correct answer is: Section 138
Q.8 A bill of exchange must be accepted by:
The drawer
The payee
The drawee
The banker
Explanation - The drawee is the person on whom the bill is drawn and must accept the bill to acknowledge the obligation to pay.
Correct answer is: The drawee
Q.9 What is 'crossing' of a cheque?
Writing two parallel lines on the face of the cheque
Signing the cheque
Endorsing the cheque
Presenting the cheque to the drawer
Explanation - Crossing a cheque involves drawing two parallel lines on its face, which generally instructs the bank to pay the amount only through a bank account and not in cash.
Correct answer is: Writing two parallel lines on the face of the cheque
Q.10 Which type of cheque is always payable to the bank itself?
Bearer cheque
Order cheque
Crossed cheque
Account payee cheque
Explanation - An account payee cheque is payable only to the account of the payee and must be deposited into the payee's account.
Correct answer is: Account payee cheque
Q.11 Which negotiable instrument requires acceptance before it becomes enforceable?
Promissory note
Cheque
Bill of exchange
All of the above
Explanation - A bill of exchange must be accepted by the drawee to acknowledge the obligation to pay; promissory notes and cheques do not require acceptance.
Correct answer is: Bill of exchange
Q.12 What is the consequence if a negotiable instrument is dishonoured?
It becomes invalid
The holder may take legal action
The drawer gets immunity
The maker can transfer it again
Explanation - If a negotiable instrument is dishonoured, the holder has the right to take legal action to recover the amount.
Correct answer is: The holder may take legal action
Q.13 Which of the following statements is TRUE for a bearer instrument?
It is payable to the person named in the instrument only
It is transferable by delivery
It requires acceptance
It cannot be endorsed
Explanation - A bearer instrument is payable to whoever holds it and can be transferred simply by delivering it.
Correct answer is: It is transferable by delivery
Q.14 A 'stale cheque' refers to a cheque that is presented:
Before the date mentioned on it
After 3 months from the date of issue
On the date of issue
After endorsement
Explanation - A stale cheque is a cheque that is presented after three months from the date of issue and is usually not honored by the bank.
Correct answer is: After 3 months from the date of issue
Q.15 Which person is entitled to receive payment in a negotiable instrument?
Drawee
Payee
Drawer
Endorser
Explanation - The payee is the person entitled to receive payment as mentioned in the negotiable instrument.
Correct answer is: Payee
Q.16 Which of the following is true for an 'inland bill'?
It is drawn and payable within the same country
It is drawn in one country and payable in another
It requires acceptance from a foreign bank
It can only be a promissory note
Explanation - An inland bill is drawn and payable within the same country, as opposed to a foreign bill which is payable in a different country.
Correct answer is: It is drawn and payable within the same country
Q.17 Which of the following is a key feature of negotiability?
It cannot be transferred
Rights can be transferred by endorsement or delivery
It requires a written contract
It is always payable in cash only
Explanation - The key feature of negotiability is the ability to transfer rights under the instrument to another person by endorsement or delivery.
Correct answer is: Rights can be transferred by endorsement or delivery
Q.18 Which of the following is NOT necessary in a promissory note?
Promise to pay
Signature of maker
Name of payee
Acceptance by drawee
Explanation - A promissory note does not require acceptance because the maker itself promises to pay; acceptance is only needed in a bill of exchange.
Correct answer is: Acceptance by drawee
Q.19 If a cheque is dishonoured due to insufficient funds, the drawer may be:
Imprisoned
Fined
Both fined and imprisoned under Section 138
Not liable
Explanation - Under Section 138 of the Negotiable Instruments Act, dishonour of a cheque due to insufficient funds may lead to both imprisonment and fine.
Correct answer is: Both fined and imprisoned under Section 138
Q.20 Which of the following instruments is always unconditional?
Promissory note
Cheque
Bill of exchange
All of the above
Explanation - All negotiable instruments (promissory notes, bills of exchange, cheques) must be unconditional in order to ensure they are easily transferable and enforceable.
Correct answer is: All of the above
Q.21 A 'dishonoured cheque' is also known as:
Stale cheque
Bounced cheque
Order cheque
Bearer cheque
Explanation - A dishonoured cheque is commonly referred to as a 'bounced cheque' when it cannot be honored by the bank.
Correct answer is: Bounced cheque
Q.22 Which of the following is true regarding a 'crossed cheque'?
Can be encashed over the counter
Cannot be deposited in a bank account
Payment must be made through a bank account
Always payable to bearer
Explanation - A crossed cheque must be deposited in a bank account, and cannot be encashed over the counter, ensuring secure transfer.
Correct answer is: Payment must be made through a bank account
Q.23 Who is primarily responsible for the payment of a bill of exchange?
Drawer
Drawee on acceptance
Payee
Endorser
Explanation - The drawee, upon accepting the bill of exchange, becomes primarily responsible for its payment on the due date.
Correct answer is: Drawee on acceptance
Q.24 Which negotiable instrument is always drawn on a bank?
Promissory note
Bill of exchange
Cheque
Bearer bond
Explanation - A cheque is always drawn on a bank, instructing it to pay a certain amount to the payee or bearer.
Correct answer is: Cheque