Both--but that's what you're supposed to do!! I've read one pound of fat holds 6 pounds of water--but imagine skin that's NOT hydrated with water, and you've got beef jerky!!
yes its quite correct !!
if you lose 2 pounds , then it is the loss of 70% water and 30% fat !!
so its necessary to exercise regularly !! if you cant you get the lost weigh pretty fast !!