What occurs when endorsing a cheque?
A. transfers the right to deposit or transfer cash B. cancels the transaction C. guarantees payment D. All of these answers are correct
The correct answer and explanation is:
The correct answer is A. transfers the right to deposit or transfer cash.
Endorsing a cheque is a process where the payee (the person or entity to whom the cheque is written) signs the back of the cheque, transferring their right to the funds to another party. By endorsing the cheque, the payee gives consent for the cheque to be deposited or transferred to someone else. This endorsement can be either blank (a simple signature) or restrictive (specifying how the cheque can be used).
In the case of a blank endorsement, the payee simply signs their name, allowing the cheque to be transferred to another person who can then deposit or cash it. A restrictive endorsement, on the other hand, may include terms like “For deposit only,” which limits how the cheque can be used by the endorsee. The endorsement does not guarantee payment or cancel the transaction.
The endorsement ensures that the cheque is valid for further transfer, but it does not promise that the cheque will be paid by the bank. Payment is still subject to the availability of funds in the account of the drawer (the person who wrote the cheque). If there are insufficient funds, the cheque may bounce, and the endorser could be held liable under certain conditions.
In summary, endorsing a cheque is essentially transferring the right to access the funds, but it does not cancel the transaction or guarantee that the cheque will be honored by the bank.