Final answer:
A blank endorsement turns an order instrument into a bearer instrument by having the holder sign their name on the back of the instrument without specifying a recipient, making it payable to whomever possesses it.
Step-by-step explanation:
The kind of endorsement that turns an order instrument into a bearer instrument is known as a blank endorsement. This occurs when the holder of the instrument signs their name on the back of the instrument without designating a specific endorsee. By doing so, the instrument effectively becomes payable to whoever holds it (the bearer), and it can be negotiated further simply by handing it over to another person.
An example of a blank endorsement is when a person receives a cheque that says “pay to the order of John Doe”, and John Doe wants to make it a bearer instrument. John Doe can endorse the cheque by simply signing his name on the back of the cheque, without naming another person or entity. Whoever holds the cheque can then present it for payment or endorse it further.