Question

American Express would offer a cardholder money, say $300, to surrender his/her credit card because the

company wants to reduce the number of accounts in order to reduce its fixed cost.

cardholder is not using the card enough.

cardholder is a poor credit risk and may default with expected losses exceeding $300.

company has a very low opportunity cost for the money being offered.

Answer 1

We can evaluate the decision as follows

Credit card is basically a type of loan which is given by bank to its customers. A credit card comes with a pre set credit limit which can be used by the customer to purchase goods and services and pay the amount after a stipulated time period.

Credit card is issued to a customer without keeping any security or collateral, so there is a risk that if a person defaults then there are less chances that the money can be recovered.

Out of the given options of the above statement the most relevant which can be the reason that American Express would offer a cardholder money to surrender his/her credit card is when the card holder is at poor credit risk and may default in his payment, which can lead to greater losses for the company.

So, the correct answer is option (c)