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Derivative Financial Instruments and Hedging Activities
 6 Months Ended
Jun. 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 interest rates and foreign currency exchange 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 June 30 were as follows (in millions):
 
Second Quarter
 
First Half
 
2019
 
2020
 
2019
 
2020
Fair value hedges
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
Net interest settlements and accruals on hedging instruments
$
(12
)
 
$
68

 
$
(32
)
 
$
96

Fair value changes on hedging instruments
474

 
112

 
724

 
1,222

Fair value changes on hedged debt
(463
)
 
(98
)
 
(716
)
 
(1,191
)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Interest rate contracts
(3
)
 
(12
)
 
(30
)
 
(86
)
Foreign currency exchange contracts (a)
40

 
(41
)
 
34

 
166

Cross-currency interest rate swap contracts
141

 
154

 
(4
)
 
3

Total
$
177

 
$
183

 
$
(24
)
 
$
210

__________
(a)
Reflects forward contracts between Ford Credit and an affiliated company.

Balance Sheet Effect of Derivative Financial Instruments

Derivative assets and liabilities are reported on the 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, 2019
 
June 30, 2020
 
Notional
 
Fair Value of Assets
 
Fair Value of Liabilities
 
Notional
 
Fair Value of Assets
 
Fair Value of Liabilities
Fair value hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
26,577

 
$
702

 
$
19

 
$
24,434

 
$
1,682

 
$
—

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
68,914

 
275

 
191

 
71,075

 
752

 
573

Foreign currency exchange contracts
5,540

 
17

 
79

 
3,524

 
43

 
42

Cross-currency interest rate swap contracts
5,849

 
134

 
67

 
5,611

 
163

 
53

Total derivative financial instruments, gross (a) (b)
$
106,880

 
$
1,128

 
$
356

 
$
104,644

 
$
2,640

 
$
668

__________
(a)
At December 31, 2019 and June 30, 2020, we held collateral of $18 million and $20 million, respectively, and we posted collateral of $78 million and $91 million, respectively.
(b)
At December 31, 2019 and June 30, 2020, the fair value of assets and liabilities available for counterparty netting was $169 million and $337 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.