Final answer:
Checks have no due date and are payable on demand, while negotiable promissory notes generally have a fixed due date. Banks may not have all their assets physically in the bank as they use deposits to issue loans, invest, and keep reserves. The value of loans in the secondary market depends on the borrower's payment history, the current interest rates compared to when the loan was issued, and the borrower's financial health.
Step-by-step explanation:
Checks are materially different from negotiable promissory notes mainly because of the due date. A check is a demand instrument, meaning it is payable on demand, whereas a promissory note usually has a specific due date.
The money listed under assets on a bank balance sheet may not actually be in the bank because banks use a portion of their deposits to make loans to other customers, invest in securities, and hold in reserves at the Federal Reserve, which means not all funds are physically present in the bank.
When buying loans in the secondary market, the price may vary based on several factors:
- If a borrower has been late on loan payments, you'd want to pay less for the loan due to increased risk of default.
- If interest rates have risen, the older lower-rate loan is less attractive, so you pay less.
- If the borrower is a firm that has declared high profits, you might pay more as the loan is safer.
- If interest rates have fallen, the older higher-rate loan is worth more, so you'd pay more.