ITPEC FE Morning April 2021 Question 72
The figure below shows the transaction model of an escrow service that is used in an Internet auction site or other similar transactions. Which of the following is the action that corresponds to (5) in this figure? Here, (1) through (6) indicate the sequence of transactions, and each of the numbers from (3) to (6) corresponds to an action in a) through d).
Explanation
Notice of product receipt — at (5) the buyer tells the escrow company the goods have arrived, which releases the money.
The escrow company holds the buyer's money until delivery is confirmed. Following the arrows in the figure:
- (1) Seller and buyer: agreement of sale
- (2) Buyer to escrow: payment for purchase
- (3) Escrow to seller: notice of payment deposit
- (4) Seller to buyer: shipment of product
- (5) Buyer to escrow: notice of product receipt
- (6) Escrow to seller: transfer of payment
Answer (b)
Why not others:
- •(a) Notice of payment deposit — goes from escrow to the seller, arrow (3), so the seller knows it is safe to ship
- •(c) Shipment of product — goes from seller to buyer, arrow (4)
- •(d) Transfer of payment — goes from escrow to the seller, arrow (6), the last step
Key rule: Escrow protects both sides by holding the payment: the seller ships only after the deposit is confirmed, and the seller is paid only after the buyer confirms receipt.
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