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Derivative financial instruments
 12 Months Ended
Mar. 31, 2020
Derivative financial instruments
21. Derivative financial instruments:
Toyota employs derivative financial instruments, including foreign exchange forward contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements and interest rate options to manage its exposure to fluctuations in interest rates and foreign currency exchange rates. Toyota does not use derivatives for speculation or trading.
Fair value hedges -
Toyota enters into interest rate swaps and interest rate currency swap agreements mainly to convert its fixed-rate debt to variable-rate debt. Toyota uses interest rate swap agreements in managing interest rate risk exposure. Interest rate swap agreements are executed as either an integral part of specific debt transactions or on a portfolio basis. Toyota uses interest rate currency swap agreements to hedge exposure to currency exchange rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies. Notes and loans payable issued in foreign currencies are hedged by concurrently executing interest rate currency swap agreements, which involve the exchange of foreign currency principal and interest obligations for each functional currency obligations at agreed-upon currency exchange and interest rates.
For the years ended March 31, 2018, 2019 and 2020, the ineffective portion of Toyota’s fair value hedge relationships was not material. For fair value hedging relationships, the components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.
Undesignated derivative financial instruments -
Toyota uses foreign exchange forward contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements, and interest rate options, to manage its exposure to foreign currency exchange rate fluctuations and interest rate fluctuations from an economic perspective, and for some of which Toyota is unable to or has elected not to apply hedge accounting.
Fair value and gains or losses on derivative financial instruments -
The following table summarizes the fair values of derivative financial instruments as of March 31, 2019 and 2020:
 
Yen in millions
 
  
March 31,
 
  
2019
 
  
 
 
 
 
 
 
2020
 
 
 
 
 
 
  
Derivative assets
 
 
 
  
 
 
Derivative financial instruments designated as hedging instruments
   
     
 
Interest rate and currency swap agreements
   
     
 
Prepaid expenses and other current assets
   
—  
      
—
  
Investments and other assets - Other
   
—  
      
—
  
                 
Total
   
—  
      
—
  
                 
Undesignated derivative financial instruments
   
     
 
Interest rate and currency swap agreements
   
     
 
Prepaid expenses and other current assets
   
74,971
      
105,724
  
Investments and other assets - Other
   
114,642
      
372,786
  
                 
Total
   
189,613
      
478,510
  
                 
Foreign exchange forward and option contracts
   
     
 
Prepaid expenses and other current assets
   
10,720
      
25,316
  
Investments and other assets - Other
   
—  
      
—
  
                 
Total
   
10,720
      
25,316
  
                 
Total derivative assets
    
200,333
      
503,826
  
Counterparty netting
    
(89,364
 )    
(176,541
 )
Collateral received
    
(46,590
 )    
(121,979
 )
                 
Carrying value of derivative assets
    
64,379
      
205,306
  
                 
Derivative liabilities
 
 
 
  
 
 
Derivative financial instruments designated as hedging instruments
   
     
 
Interest rate and currency swap agreements
   
     
 
Other current liabilities
   
—
      
—
  
Other long-term liabilities
   
—
      
—
  
                 
Total
   
—
      
—
  
                 
Undesignated derivative financial instruments
   
     
 
Interest rate and currency swap agreements
   
     
 
Other current liabilities
   
(28,911
 )    
(76,492
 )
Other long-term liabilities
   
(189,157
 )    
(343,271
 )
                 
Total
   
(218,068
 )    
(419,763
 )
                 
Foreign exchange forward and option contracts
   
     
 
Other current liabilities
   
(13,847
 )    
(17,245
 )
Other long-term liabilities
   
—  
      
—
  
                 
Total
   
(13,847
 )    
(17,245
 )
                 
Total derivative liabilities
    
(231,915
 )    
(437,008
 )
Counterparty netting
    
89,364
      
176,541
  
Collateral posted
    
110,159
      
234,937
  
                 
Carrying value of derivative liabilities
    
(32,392
 )    
(25,530
 )
                 
The following table summarizes the notional amounts of derivative financial instruments as of March 31, 2019 and 2020:
 
Yen in millions
 
  
March 31,
 
  
2019
   
2020
 
  
Designated
derivative
financial
instruments
 
  
Undesignated
derivative
financial
instruments
 
  
Designated
derivative
financial
instruments
 
  
Undesignated
derivative
financial
instruments
 
Interest rate and currency swap agreements
   
—  
      
21,001,883
      
—  
      
20,310,018
 
Foreign exchange forward and option contracts
   
—  
      
4,005,578
      
—  
      
3,916,824
 
                                 
Total
   
—  
      
25,007,461
      
—  
      
24,226,842
 
                                 
The following table summarizes the gains and losses on derivative financial instruments and hedged items reported in the consolidated statements of income for the years ended March 31, 2018, 2019 and 2020:
 
Yen in millions
 
  
For the years ended March 31,
 
  
2018
   
2019
   
2020
 
  
Gains or
(losses) on
derivative
financial
instruments
 
  
Gains or
(losses) on
hedged items
 
  
Gains or
(losses) on
derivative
financial
instruments
 
  
Gains or
(losses) on
hedged items
 
  
Gains or
(losses) on
derivative
financial
instruments
 
  
Gains or
(losses) on
hedged items
 
Derivative financial instruments designated as hedging instruments
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Interest rate and currency swap agreements
   
     
     
     
     
     
 
Cost of financing operations
   
782
      
(227
 )    
(822
 )    
799
      
—
     
—
  
                                                 
Undesignated derivative financial instruments
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Interest rate and currency swap agreements
   
     
     
     
     
     
 
Cost of financing operations
   
42,220
      
     
(18,433
 )    
     
51,552
     
 
Foreign exchange gain (loss), net
   
30,339
      
     
37,124
      
     
67,142
     
 
Foreign exchange forward and option
 

contracts
   
     
     
     
     
     
 
Cost of financing operations
   
6,442
      
     
2,240
      
     
33,538
     
 
Foreign exchange gain (loss), net
   
73,115
      
     
(69,826
 )    
     
8,281
     
 
Undesignated derivative financial instruments are used to manage economic risks of fluctuations in foreign currency exchange rates and interest rates of certain receivables and payables. Those economic risks are offset by changes in the fair value of undesignated derivative financial instruments.
Cash flows from transactions of derivative financial instruments are included in cash flows from operating activities in the consolidated statements of cash flows.
Credit risk related contingent features -
Toyota enters into International Swaps and Derivatives Association Master Agreements with counterparties. These Master Agreements contain a provision requiring either Toyota or the counterparty to settle the contract or to post assets to the other party in the event of a ratings downgrade below a specified threshold.
The aggregate fair value amount of derivative financial instruments that contain credit risk related contingent features that are in a net liability position after being offset by cash collateral as of March 31, 2020 is ¥6,750 million. The aggregate fair value amount of assets that are already posted as cash collateral as of March 31,
2020
is ¥230,830 million. If the ratings of Toyota decline below specified thresholds, the maximum amount of assets to be posted or for which Toyota could be required to settle the contracts is ¥6,750 million as of March 31, 2020.