What is a negotiable instrument?

A negotiable instrument is fundamentally a document that guarantees payment to the holder. This means that it represents a written promise or order to pay a specific sum of money, either on demand or at a set time, and can be easily transferred from one person to another. Therefore, the term refers not merely to a financial asset that can be bought and sold but specifically to instruments like checks, promissory notes, and bills of exchange, which meet criteria set forth in the Uniform Commercial Code (UCC). These instruments can be transferred and imply a right to receive the amount indicated, making them negotiable in nature.

The other options describe concepts related to finance but do not capture the essence of what a negotiable instrument is. For instance, a document that guarantees payment directly aligns with the definition of negotiable instruments, while financial assets that can be bought and sold are broader in scope and may not pertain to the requirements of negotiability. Similarly, an agreement to lend money at a specified interest rate refers to a loan agreement rather than a negotiable instrument. A type of mortgage requiring collateral is a specific real estate financing arrangement and does not relate to the definition of negotiability or the transferability of payment rights. Thus, the most precise definition involves