We use derivative financial instruments to manage exposures to various market risks. These instruments derive their value from an underlying variable or multiple variables, including interest rates, foreign exchange rates, and an equity index or price, and are carried at fair value on the Consolidated Balance Sheets. These instruments enable end users to increase, reduce or alter exposure to various market risks and, for that reason, are an integral component of our market risk management. We do not transact in derivatives for trading purposes.

In relation to our credit risk, certain of our bilateral derivative agreements include provisions that allow our counterparties to terminate the agreement in the event of a downgrade of our debt credit rating below investment grade and settle the outstanding net liability position. As of June 30, 2019, these derivatives were not in a material net liability position. Based on our assessment of the credit risk of our derivative counterparties as of June 30, 2019 and December 31, 2018, no credit risk adjustment to the derivative portfolio was required.

A majority of our derivative assets and liabilities as of June 30, 2019 and December 31, 2018 are subject to master netting agreements with our derivative counterparties. We have no derivative amounts subject to enforceable master netting arrangements that are not offset on the Consolidated Balance Sheets.

The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of June 30, 2019 and December 31, 2018:



	Other Assets Fair Value						Other Liabilities Fair Value
(Millions)	2019			2018			2019			2018
Derivatives designated as hedging instruments:
Fair value hedges - Interest rate contracts ^(a)	$	191		$	34		$	—		$	74
Net investment hedges - Foreign exchange contracts	107			222			60			61
Total derivatives designated as hedging instruments	298			256			60			135
Derivatives not designated as hedging instruments:
Foreign exchange contracts, including an embedded derivative	162			258			150			79
Total derivatives, gross	460			514			210			214
Less: Cash collateral netting ^(b)(c)	(191		)	(28		)	(9		)	(78		)
Derivative asset and derivative liability netting ^(d)	(133		)	(90		)	(133		)	(90		)
Total derivatives, net	$	136		$	396		$	68		$	46

We are exposed to interest rate risk associated with our fixed-rate long-term debt obligations. At the time of issuance, certain fixed-rate debt obligations are designated in fair value hedging relationships, using interest rate swaps, to economically convert the fixed interest rate to a floating interest rate. We have $22.1 billion and $24.0 billion of fixed-rate debt obligations designated in fair value hedging relationships as of June 30, 2019 and December 31, 2018, respectively.

The following table presents the gains and losses recognized in Interest expense on the Consolidated Statements of Income associated with the fair value hedges of our fixed-rate long-term debt for the three and six months ended June 30:



	Gains (losses)
	Three Months Ended June 30,						Six Months Ended June 30,
(Millions)	2019			2018			2019			2018
Fixed-rate long-term debt	$	(280	)	$	58		$	(440	)	$	268
Derivatives designated as hedging instruments	286			(67		)	444			(258		)
Total	$	6		$	(9	)	$	4		$	10

The carrying values of the hedged liabilities, recorded within Long-term debt on the Consolidated Balance Sheets, were $22.2 billion and $23.7 billion as of June 30, 2019 and December 31, 2018, respectively, including the cumulative amount of fair value hedging adjustments of $199 million and $(241) million for the respective periods.

We recognized net increases of $36 million and $13 million in Interest expense on Long-term debt for the three months ended June 30, 2019 and 2018, respectively, and a net increase of $74 million and a net reduction of $1 million for the six months ended June 30, 2019 and 2018, respectively, primarily related to the net settlements (interest accruals) on our interest rate derivatives designated as fair value hedges.

We had notional amounts of approximately $9.7 billion and $9.6 billion of foreign currency derivatives designated as net investment hedges as of June 30, 2019 and December 31, 2018, respectively. The gain or loss on net investment hedges, net of taxes, recorded in AOCI as part of the cumulative translation adjustment, were gains of $87 million and $320 million for the three months ended June 30, 2019 and 2018, respectively, and a loss of $75 million and a gain of $158 million for the six months ended June 30, 2019 and 2018, respectively.

The changes in the fair value of derivatives that are not designated as hedges are intended to offset the related foreign exchange gains or losses of the underlying foreign currency exposures. The changes in the fair value of the derivatives and the related underlying foreign currency exposures resulted in net gains of $23 million and $55 million for the three months ended June 30, 2019 and 2018, respectively, and $27 million and $34 million for the six months ended June 30, 2019 and 2018, respectively, that are recognized in Other expenses on the Consolidated Statements of Income.

The changes in the fair value of an embedded derivative were nil for both the three and six months ended June 30, 2019, and resulted in losses of $4 million and $6 million for the three and six months ended June 30, 2018, respectively, that are recognized in Card Member services expense on the Consolidated Statements of Income.