Which of the following is an example of a negotiated instrument?

Which of the following is an example of a negotiated instrument?

• A. A check that can be endorsed to another party
• B. A personal loan agreement
• C. An invoice for services
• D. A credit note for returned goods

Answer: (A)

A check that can be endorsed to another party represents a negotiated instrument because it is a written order directing a bank to pay a specific amount of money to the bearer or to the person named on the check. This endorsement allows the check to be transferred from one party to another, which is a fundamental characteristic of negotiated instruments. Negotiable instruments are designed to be transferable and facilitate the quick movement of funds without the need for a formal contract for each transaction. In contrast, a personal loan agreement typically involves detailed terms meticulously defined by the parties involved, and it does not inherently allow for transfer or negotiation like a check does. An invoice for services serves as a request for payment but is not transferable in nature. Similarly, a credit note for returned goods represents a claim against an account rather than a monetary instrument that can be easily transferred or endorsed, which is why these options do not fit the definition of a negotiated instrument.

A check that can be endorsed to another party represents a negotiated instrument because it is a written order directing a bank to pay a specific amount of money to the bearer or to the person named on the check. This endorsement allows the check to be transferred from one party to another, which is a fundamental characteristic of negotiated instruments.

Negotiable instruments are designed to be transferable and facilitate the quick movement of funds without the need for a formal contract for each transaction. In contrast, a personal loan agreement typically involves detailed terms meticulously defined by the parties involved, and it does not inherently allow for transfer or negotiation like a check does. An invoice for services serves as a request for payment but is not transferable in nature. Similarly, a credit note for returned goods represents a claim against an account rather than a monetary instrument that can be easily transferred or endorsed, which is why these options do not fit the definition of a negotiated instrument.