The assumption of arm's-length transaction states that:
A) both parties to a transaction can act independently of each other and make economically rational decisions.
B) both parties to a transaction must have had previous transactions.
C) one of the parties to the transaction is a bank that has full knowledge of the firm's creditworthiness.
D) None of the above.

Question

Quizplus · Accepted Answer

The assumption of arm's-length transaction assumes that both parties to a transaction can act independently of each other and make economically rational decisions. It does not require that the parties have had previous transactions or that one of the parties is a bank with full knowledge of the firm's creditworthiness.

The Assumption of Arm's-Length Transaction States That