The success of the currency swap market and the success of the Eurobond market are explicitly linked. Companies have to come up with the funds to deliver the notional at the end of the contract. They are obliged to exchange one currency's notional against the other currency's notional at a fixed rate. The more actual market rates have deviated from this contracted rate, the greater the potential loss or gain. This potential exposure is magnified with time.
Volatility increases with time.
The longer the contract, the more room for the currency to move to one side or other of the agreed upon contracted rate of principal exchange. This explains why currency swaps tie up greater credit lines than regular interest rate swaps. We price or value currency swaps in the same way that we learned how to price interest rate swaps, using a discounted cash flow analysis having obtained the zero coupon version of the swap curves. Generally, currency swaps transact at inception with a net present value of zero. They are an integral arbitrage link between the interest rates of different developed countries.