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 September 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 September 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 September 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 September 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)	$	277	$	34	$	—	$	74
Net investment hedges - Foreign exchange contracts	202		222		46		61
Total derivatives designated as hedging instruments	479		256		46		135
Derivatives not designated as hedging instruments:
Foreign exchange contracts, including an embedded derivative	143		258		147		79
Total derivatives, gross	622		514		193		214
Less: Cash collateral netting ^(b)(c)	(281)		(28)		(2)		(78)
Derivative asset and derivative liability netting ^(d)	(131)		(90)		(131)		(90)
Total derivatives, net	$	210	$	396	$	60	$	46

(a)For our centrally cleared derivatives, variation margin payments are legally characterized as settlement payments as opposed to collateral.

(b)Represents the offsetting of the fair value of bilateral interest rate contracts and certain foreign exchange contracts with the right to cash collateral held from the counterparty or cash collateral posted with the counterparty.

(c)We posted $87 million and $84 million as of September 30, 2019 and December 31, 2018, respectively, as initial margin on our centrally cleared interest rate swaps; such amounts are recorded within Other receivables on the Consolidated Balance Sheets and are not netted against the derivative balances.

(d)Represents the amount of netting of derivative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement.

We are exposed to interest rate risk associated with our fixed-rate debt obligations. At the time of issuance, certain fixed-rate long-term 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 $22.6 billion and $24.0 billion of fixed-rate debt obligations designated in fair value hedging relationships as of September 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 nine months ended September 30:


	Gains (losses)
	Three Months Ended September 30,						Nine Months Ended September 30,
(Millions)	2019		2018		2019		2018
Fixed-rate long-term debt	$	(123)	$	63	$	(563)	$	331
Derivatives designated as hedging instruments	127		(65)		571		(323)
Total	$	4	$	(2)	$	8	$	8

The carrying values of the hedged liabilities, recorded within Long-term debt on the Consolidated Balance Sheets, were $22.8 billion and $23.7 billion as of September 30, 2019 and December 31, 2018, respectively, including the cumulative amount of fair value hedging adjustments of $322 million and $(241) million for the respective periods.

We recognized net increases of $28 million and $20 million in Interest expense on Long-term debt for the three months ended September 30, 2019 and 2018, respectively, and net increases of $102 million and $19 million for the nine months ended September 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 $10.0 billion and $9.6 billion of foreign currency derivatives designated as net investment hedges as of September 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 a gain of $138 million and a loss of $22 million for the three months ended September 30, 2019 and 2018, respectively, and gains of $63 million and $136 million for the nine months ended September 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 a net gain of $25 million and a net loss of $8 million for the three months ended September 30, 2019 and 2018, respectively, and net gains of $52 million and $26 million for the nine months ended September 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 nine months ended September 30, 2019, and resulted in losses of $5 million and $11 million for the three and nine months ended September 30, 2018, respectively, that are recognized in Card Member services expense on the Consolidated Statements of Income.