As the title says, out of curiosity, why do currency swaps require notionals to be exchanged at the beginning and the end?
Without further rationale, no only does this approach seems unintuitive, it is also difficult to implement where there are capital control?
My understanding (having never done this personally) is that in real life there isn’t always the exchange of notionals.
Nevertheless, CFA Institute assumes that there is, so you should assume that there is.
Market allows swaps with or without exchange of notional. I find it intuitive that you don’t want to hold a currency, you don’t need but end up accepting to do an fx swap, or a CCS to generate usd flows in which you may have a book. Holding the currency in your book ,and exchanging only interest flows, may lead to revaluation requirements in a foreign currency, exchanging does away with that, credit limit permitting
CFA books give you the full picture, with explanation of where maximum credit risk lies during the tenor of a swap. Without notional exchange, we get lesser idea while studying swaps.
The calculation of flows isn’t the issue here.
Why do you think it is counterintuitive?
The NPs are exchanged to hedge the FX volaitoity. Swaps are primarily pvt. contracts. Undue or unanticipated FX volatilty at the maturity of contract will invariably put one party in advanatge to another. To neutralise that the NPs are no longer NPs. They are the real thing that stands exchanged.