Fair Value Measurements

We measure our cash equivalents, investments and foreign exchange forward contracts at fair value. The authoritative guidance defines fair value as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.

The fair value hierarchy consists of the following three levels:


•	Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.


•	Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.


•	Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2016:



	Level 1		Level 2			Level 3		Total
	(in millions)
Cash equivalents:
Money market funds	$	624	$	—		$	—	$	624
Commercial paper	—		131			—		131
Total cash equivalents	624		131			—		755
Short-term investments:
Time deposits	—		806			—		806
Available-for-sale investment securities:
U.S. Treasury and agency debt securities	558		44			—		602
Corporate and other debt securities	—		405			—		405
Certificates of deposit and commercial paper	—		911			—		911
Asset-backed securities	—		231			—		231
Municipal debt securities	—		115			—		115
Total available-for-sale investment securities	558		1,706			—		2,264
Held-to-maturity investment securities:
Certificates of deposit and commercial paper	—		40			—		40
Total held-to-maturity investment securities	—		40			—		40
Total short-term investments⁽¹⁾	558		2,552			—		3,110
Derivative financial instruments - foreign exchange forward contracts:
Other current assets	—		34			—		34
Accrued expenses and other current liabilities	—		(4		)	—		(4		)
Other noncurrent assets	—		17			—		17
Other noncurrent liabilities	—		—			—		—
Total	$	1,182	$	2,730		$	—	$	3,912

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(1)	Excludes trading securities in mutual funds valued at $25 million based on the net asset value, or NAV, of the fund at December 31, 2016.

The following table summarizes our financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2015:



	Level 1		Level 2			Level 3		Total
	(in millions)
Cash equivalents:
Money market funds	$	496	$	—		$	—	$	496
Total cash equivalents	496		—			—		496
Short-term investments:
Time deposits	—		809			—		809
Available-for-sale investment securities:
U.S. Treasury and agency debt securities	464		63			—		527
Corporate and other debt securities			361			—		361
Certificates of deposit and commercial paper			754			—		754
Asset-backed securities			230			—		230
Municipal debt securities			121			—		121
Total available-for-sale investment securities⁽¹⁾	464		1,529			—		1,993
Total short-term investments⁽¹⁾	464		2,338			—		2,802
Derivative financial instruments - foreign exchange forward contracts:
Other current assets	—		7			—		7
Accrued expenses and other current liabilities	—		(11		)	—		(11		)
Other noncurrent assets	—		2			—		2
Other noncurrent liabilities	—		(14		)	—		(14		)
Total	$	960	$	2,322		$	—	$	3,282

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(1)	Excludes mutual funds valued at $22 million based on the net asset value, or NAV, of the fund at December 31, 2015.

We measure the fair value of money market funds and U.S. Treasury securities based on quoted prices in active markets for identical assets and therefore classify these assets as Level 1. The fair value of commercial paper, certificates of deposit, U.S. government agency securities, municipal debt securities, U.S. and international corporate bonds and foreign government debt securities is measured based on relevant trade data, dealer quotes, or model driven valuations using significant inputs derived from or corroborated by observable market data, such as yield curves and credit spreads. We measure the fair value of our asset-backed securities using model driven valuations based on significant inputs derived from or corroborated by observable market data such as dealer quotes, available trade information, spread data, current market assumptions on prepayment speeds and defaults and historical data on deal collateral performance. The carrying value of the time deposits approximated fair value as of December 31, 2016 and 2015.

We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows model. This model calculates the difference between the current market forward price and the contracted forward price for each foreign exchange contract and applies the difference in the rates to each outstanding contract. The market forward rates include a discount and credit risk factor. The amounts are aggregated by type of contract and maturity.

During the years ended December 31, 2016, 2015 and 2014, there were no transfers among Level 1, Level 2 or Level 3 financial assets and liabilities.