Final answer:
Option 4: 'Improved customer relationships' is the reason that is not related to the cost concerns of extending credit; it is generally viewed as a benefit, not a cost. Businesses worry about non-payment, opportunity costs, and administrative costs associated with extending credit.
Step-by-step explanation:
Among the provided options regarding why companies are concerned about extending credit, the correct answer is option 4: Improved customer relationships is not a concern related to the cost of extending credit. Businesses are generally concerned about the cost of extending credit due to the risk of non-payment, the opportunity cost of having their funds tied up in credit and unable to use them elsewhere, and increased administrative costs associated with managing credit accounts and pursuing overdue payments.
Concerns such as the risk of loan defaults are crucial for banks since they have to balance the loans given out with the deposits they hold. There is also the issue of asset-liability time mismatch, where customers can withdraw their deposits in the short term while the loans given out are repaid over a much longer term. In times of economic uncertainty or rising interest rates, this mismatch can strain a bank’s financial health, particularly if loan defaults are higher than the bank projected in its financial planning.