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Derivative Financial Instruments and Hedging Activities
 9 Months Ended
Sep. 30, 2019
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 September 30 were as follows (in millions):
 
Third Quarter
 
First Nine Months
 
2018
 
2019
 
2018
 
2019
Fair value hedges
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
Net interest settlements and accruals on hedging instruments
$
(5
)
 
$
—

 
$
19

 
$
(32
)
Fair value changes on hedging instruments
(102
)
 
203

 
(531
)
 
927

Fair value changes on hedged debt
110

 
(194
)
 
521

 
(910
)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Interest rate contracts
9

 
18

 
(28
)
 
(12
)
Foreign currency exchange contracts (a)
6

 
154

 
104

 
188

Cross-currency interest rate swap contracts
(75
)
 
(257
)
 
(258
)
 
(261
)
Total
$
(57
)
 
$
(76
)
 
$
(173
)
 
$
(100
)
__________
(a)
Reflects forward contracts between Ford Credit and an affiliated company.

NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

Derivative assets and liabilities are reported on the balance sheet 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, presented gross, were as follows (in millions):
 
December 31, 2018
 
September 30, 2019
 
Notional
 
Fair Value of Assets
 
Fair Value of Liabilities
 
Notional
 
Fair Value of Assets
 
Fair Value of Liabilities
Fair value hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
22,989

 
$
158

 
$
208

 
$
25,235

 
$
789

 
$
10

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
76,904

 
235

 
274

 
64,523

 
271

 
290

Foreign currency exchange contracts
4,318

 
45

 
24

 
5,567

 
108

 
18

Cross-currency interest rate swap contracts
5,235

 
232

 
157

 
7,203

 
127

 
319

Total derivative financial instruments, gross (a) (b)
$
109,446

 
$
670

 
$
663

 
$
102,528

 
$
1,295

 
$
637

__________
(a)
At December 31, 2018 and September 30, 2019, we held collateral of $19 million and $24 million, respectively, and we posted collateral of $59 million and $100 million, respectively.
(b)
At December 31, 2018 and September 30, 2019, the fair value of assets and liabilities available for counterparty netting was $233 million and $282 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.