Question

What is ‘Share swap’?
A. A business takeover in which the acquiring company uses its own stock to pay for the acquired company.
B. When a company uses its own shares to get a short-term loan for working capital requirements.
C. When companies are required to float a new issue to earn capital for their expansion programmes, and each shareholder gets some additional preferential shares. This process is known as Share Swap.

• A. Only A
• B. Only A and B
• C. Only C
• D. None of the above

Hint:

A “swap” always means exchanging one thing for another; ask what is being exchanged for what in each statement.

Answer 1

The Correct Option is A

The fastest way to answer this is to check each statement against the plain meaning of the word "swap": exchanging one thing for another, here shares for ownership of a company.

1. Statement A: The acquirer hands over its own shares instead of cash to buy the target company. Shares are being exchanged for the company, which is exactly a swap, so this is correct.
2. Statement B: Using shares as collateral for a short-term loan is a lending transaction, not an exchange of shares for a company, so this is wrong.
3. Statement C: A fresh issue giving shareholders extra preferential shares is a capital-raising or bonus action, not a takeover payment method, so this is wrong.

Only statement A survives this check.

So the correct answer is option A, only A.