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

Step 1: Understanding the Concept.
A share swap is a method of paying for a company takeover using shares (stock) instead of cash.

Step 2: Check statement A.
Statement A says the acquiring company pays for the target company using its own stock. This is exactly the standard definition of a share swap, so A is correct.

Step 3: Check statement B.
Statement B describes pledging shares to raise a short-term working-capital loan. That is a loan against shares, not a swap, so B is wrong.

Step 4: Check statement C.
Statement C describes a fresh issue of shares giving existing shareholders extra preferential shares. That is closer to a rights or bonus issue, not a swap, so C is wrong.

Step 5: Final Answer.
Only statement A correctly defines a share swap.