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Derivative Financial Instruments and Hedging Activities (Notes)
 9 Months Ended
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices, and interest rates. To manage these risks, we enter into highly effective derivative contracts. We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.

Income Effect of Derivative Financial Instruments

The gains/(losses), by hedge designation, reported in income for the periods ended September 30 were as follows (in millions):
 Third QuarterFirst Nine Months
Cash flow hedges
2019202020192020
Reclassified from AOCI to Cost of sales
Foreign currency exchange contracts (a)
$(8)$6 $90 $(68)
Commodity contracts (b)
(10)(22)(21)(50)
Fair value hedges
Interest rate contracts
Net interest settlements and accruals on hedging instruments
— 94 (32)190 
Fair value changes on hedging instruments203 (103)927 1,119 
Fair value changes on hedged debt(194)96 (910)(1,095)
Cross-currency interest rate swap contracts (c)
Net interest settlements and accruals on hedging instruments
— (1)— (1)
Fair value changes on hedging instruments— (10)— (10)
Fair value changes on hedged debt— 6 — 6 
Derivatives not designated as hedging instruments
Foreign currency exchange contracts (d)347 (349)324 (37)
Cross-currency interest rate swap contracts
(257)210 (261)213 
Interest rate contracts18 (4)(12)(90)
Commodity contracts(8)19 (9)(12)
Total$91 $(58)$96 $165 
__________
(a)For the third quarter and first nine months of 2019, a $68 million loss and a $384 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax. For the third quarter and first nine months of 2020, a $132 million loss and a $684 million gain, respectively, were reported in Other comprehensive income/(loss), net of tax.
(b)For the third quarter and first nine months of 2019, a $32 million loss and a $58 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax. For the third quarter and first nine months of 2020, a $36 million gain and a $48 million loss, respectively, were reported in Other comprehensive income/(loss), net of tax.
(c)During the third quarter of 2020, we began designating cross-currency interest rate swap contracts. We enter into cross-currency interest rate swaps to hedge our exposure to interest rate risk and foreign currency risk associated with the issuance of foreign denominated long-term debt. We report the change in fair value of the hedged debt and hedging instrument related to the change in the benchmark interest rate in Ford Credit interest, operating, and other expenses. We report the change in fair value of the hedged debt and hedging instrument related to foreign currency in Other income/(loss), net.
(d)For the third quarter and first nine months of 2019, a $193 million gain and a $136 million gain were reported in Cost of sales, respectively, and a $154 million gain and a $188 million gain were reported in Other income/(loss), net, respectively. For the third quarter and first nine months of 2020, a $242 million loss and a $97 million loss were reported in Cost of sales, respectively, and a $107 million loss and a $60 million gain were reported in Other income/(loss), net, respectively.
NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

Derivative assets and liabilities are reported on our consolidated balance sheets at fair value and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may allow for netting of exposures in the event of default or breach of the counterparty agreement. Collateral represents cash received or paid under reciprocal arrangements that we have entered into with our derivative counterparties, which we do not use to offset our derivative assets and liabilities.

The fair value of our derivative instruments and the associated notional amounts were as follows (in millions):
December 31, 2019September 30, 2020
NotionalFair Value of
Assets		Fair Value of
Liabilities		NotionalFair Value of
Assets		Fair Value of
Liabilities
Cash flow hedges   
Foreign currency exchange contracts
$15,349 $47 $493 $14,100 $217 $76 
Commodity contracts673 5 29 631 9 29 
Fair value hedges   
Interest rate contracts26,577 702 19 23,224 1,417 1 
Cross-currency interest rate swap contracts
— — — 885 — 11 
Derivatives not designated as hedging instruments
Foreign currency exchange contracts19,350 58 270 21,758 244 126 
Cross-currency interest rate swap contracts
5,849 134 67 6,285 377 20 
Interest rate contracts68,914 275 191 71,071 675 510 
Commodity contracts467 9 9 506 31 8 
Total derivative financial instruments, gross (a) (b)
$137,179 $1,230 $1,078 $138,460 $2,970 $781 
Current portion
$390 $772 $1,169 $517 
Non-current portion
840 306 1,801 264 
Total derivative financial instruments, gross
$1,230 $1,078 $2,970 $781 
__________
(a)At December 31, 2019 and September 30, 2020, we held collateral of $18 million and $11 million, respectively, and we posted collateral of $78 million and $103 million, respectively.
(b)At December 31, 2019 and September 30, 2020, the fair value of assets and liabilities available for counterparty netting was $269 million and $469 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.