Currency Swap Principle exchanges

[hsuwang]

Hello David,

Can you please explain why principle is exchanged at both at "inception" and at the end? I thought principle is exchanged only at the end.

Thanks.

 

[David Harper CFA FRM]

Hi Jack,

Both Hull and Culp say the initial principal is "typically" or "usually" exchanged.
ISDA support by saying counterparties do make initial exchange of principal
see 22. cross-currency swap @ http://www.isda.org/educat/faqs.html#22

My Neftci (principles of financial engineering, 2nd ed) says the initial exchange is optional but "a minor issue"

and i honestly don't why it would be typical or not as the initial swap would seem to have little impact. sorry

David