Which of the following statements best describes an agency relationship?

An agency relationship fundamentally revolves around the idea that an agent acts on behalf of a principal, following the principal's directions and instructions. In this relationship, the agent's authority to act is typically based on the principal's guidance, and the agent is obligated to adhere to the terms set by the principal. This duty ensures that the agent is effectively representing the interests of the principal and not acting independently or in their own self-interest.

The nature of the agency relationship emphasizes collaboration and direction—from the principal to the agent—forming a legal and ethical obligation for the agent to execute actions in line with the principal's desires. This mutual expectation is critical to maintaining trust and accountability in the agency relationship.

Other choices reflect misunderstandings of the agency relationship. An agent acting independently without the principal’s direction misrepresents the essence of the role, while claiming that the agent can only represent their own interests neglects the fundamental commitment to act for the principal. Additionally, the notion that an agent has exclusive rights over contract terms fails to recognize that the agent's authority is granted by the principal, who ultimately retains control over the contractual obligations and terms.