National Check Professional (NCP) Certification Practice Test

How is a negotiable instrument defined?

1. A promise to pay in future

2. A written promise or order to pay a specified amount

3. Any document with monetary value

4. A bank transaction record

The correct answer is: A written promise or order to pay a specified amount

A negotiable instrument is specifically defined as a written promise or order to pay a specified amount of money to a designated party or bearer at a certain time or on demand. This definition captures the essential characteristics of negotiable instruments, which include their transferability and the clear specification of a monetary obligation. Negotiable instruments, such as checks, promissory notes, and bills of exchange, allow for the easy transfer of payments between parties while maintaining a clear legal framework regarding the obligations involved. The instrument must be in writing and contain an unconditional promise or order to pay a specific sum to facilitate effective negotiation and enforcement. Other options fall short of this comprehensive definition: a promise to pay in the future does not encompass the transferability and written nature required for negotiability; any document with monetary value lacks the specificity regarding the terms of payment; and a bank transaction record does not represent a promise or order to pay but rather the documentation of a completed financial transaction. Therefore, the option that accurately reflects the definition of a negotiable instrument is the one emphasizing its written promise or order to pay a specified amount.