Question about currency swap

In a currency swap, the underlying principal amount is exchanged:

  1. only at the start of the swap.
  2. only at the end of the swap.
  3. both at the start and at the end of the swap.

The answer is 3. I am not sure why? Why would people exchange twice? For example, if A and B want to swap 100 dollars for 700 RMBs, they do it at the start right?


And then they exchange it back at the end.

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You have to look at why you do it in the first place.Yoi borrow in EURO.You have no loan book in EUR .So you convert it in USD ( first leg) and lend in USD At maturity,you have to repay the EUR borrowing.You can either sell USD or get EUR back in CCS The latter is done
In fact exchange rate is same at near and far leg,and therefore leads to exposure in terms of exchange rate( Net open Exposure Report shows it) How is that exposure calculated is not part of the curriculum,I guess ? But I guess S2000Magician can help?!

This also affects the credit risk exposure in a CCS Credit risk is there in the middle and end of the swap,unlike IRS where it is concentrated in the middle