Endorsing a cheque
options:
A) cancels the transaction.
B) guarantees payment.
C) transfers the right to deposit or transfer cash.
D) All of these answers are correct
The correct answer and explanation is:
The correct answer is C) transfers the right to deposit or transfer cash.
When a cheque is endorsed, the person endorsing it signs the back of the cheque, which typically indicates their intention to either transfer ownership or to authorize payment. The endorsement serves as a mechanism that allows the cheque to be transferred to another party or deposited into a bank account. The person who receives the endorsed cheque (the endorsee) now has the right to cash or deposit it.
Endorsing a cheque does not cancel the transaction, as the original payee has merely transferred their right to the funds, and the cheque itself remains a valid instrument. It also does not guarantee payment because the bank still has to verify whether the cheque is valid, whether there are sufficient funds in the account, and whether it has been signed correctly.
Therefore, endorsing the cheque does not guarantee payment (which is a misunderstanding of option B), and it does not cancel the transaction (option A). The main purpose of endorsing is to transfer the right to deposit or transfer cash, making option C the correct answer.
In practice, an endorsement is required when the cheque needs to be passed on to another individual or institution. For example, if a person receives a cheque as payment and wishes to deposit it into their bank account, they must endorse the back of the cheque to transfer ownership to themselves. The endorsement can be a simple signature, or it can involve a more specific instruction, such as a restrictive endorsement, depending on the intended use.