The Concept of Arm’s Length Relationship
In finance, transactions between unrelated parties in an open market are referred to as arm’s length relationships. These transactions are carried out professionally, influenced by market dynamics and motivated by business goals.
In general, it can be interpreted as a consent between two parties that is not impacted by outside factors and occurs over a distance. An arm’s length relationship is based on mutual respect and independence, which enables both parties to conduct business impartially and free from undue influence.
In international business, these kinds of relationships are crucial because transactions take place between nations and one party may not be familiar with the other’s laws and customs. Relationships that are at arm’s length shield both parties against any misunderstandings or confusion resulting from personal, legal, or cultural ties.