Financial Instruments

We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments under the Derivatives and Hedging Topic of the FASB ASC and those utilized as economic hedges. We operate internationally and, in the ordinary course of business, we are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We have used derivative instruments, including swaps, forward contracts and options to manage certain foreign currency, interest rate and commodity price exposures.

The four quarter rolling average of the notional amount of foreign exchange contracts hedging foreign currency transactions was $18.8 billion and $18.3 billion at June 30, 2017 and December 31, 2016, respectively.

The following table summarizes the fair value of derivative instruments as of June 30, 2017 and December 31, 2016, which consist solely of foreign exchange contracts:



	Asset Derivatives				Liability Derivatives
(Dollars in millions)	June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Derivatives designated as hedging instruments	$	44	$	15	$	73	$	196
Derivatives not designated as hedging instruments	124		155		69		158

As discussed in Note 5, we have issued approximately €2.95 billion of euro-denominated long-term debt and €500 million of outstanding euro-denominated commercial paper borrowings, which qualify as a net investment hedge against our investments in European businesses. As of June 30, 2017, the net investment hedge is deemed to be effective.

The amount of gains and losses related to the Company's derivative financial instruments was as follows:



	Quarter Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2017		2016		2017		2016
Gain recorded in Accumulated other comprehensive loss	$	66	$	36	$	130	$	195
Loss reclassified from Accumulated other comprehensive loss into Product sales (effective portion)	5		45		10		107

Assuming current market conditions continue, a $3 million pre-tax loss is expected to be reclassified from Accumulated other comprehensive loss into Product sales to reflect the fixed prices obtained from foreign exchange hedging within the next 12 months. At June 30, 2017, all derivative contracts accounted for as cash flow hedges will mature by November 2022.

The effect on the Condensed Consolidated Statement of Operations of foreign exchange contracts not designated as hedging instruments was as follows:



	Quarter Ended June 30,				Six Months Ended June 30,
(Dollars in millions)	2017		2016		2017		2016
Gain recognized in Other income, net	$	28	$	15	$	40	$	30

We paid $294 million and received $86 million from settlements of derivative contracts during the six months ended June 30, 2017 and 2016, respectively.