We use derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, and credit; to enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment.

Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions.

Foreign currency risks related to certain non-U.S. dollar-denominated investments are hedged using foreign exchange forward contracts that are designated as fair value hedging instruments. Foreign currency risks related to certain Euro-denominated debt are hedged using foreign exchange forward contracts that are designated as cash flow hedging instruments.

In the past, option and forward contracts were used to hedge a portion of forecasted international revenue and were designated as cash flow hedging instruments. Principal currencies hedged included the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar.

Certain options and forwards not designated as hedging instruments are also used to manage the variability in foreign exchange rates on certain balance sheet amounts and to manage other foreign currency exposures.

Interest rate risks related to certain fixed-rate debt are hedged using interest rate swaps that are designated as fair value hedging instruments to effectively convert the fixed interest rates to floating interest rates.

Securities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We manage the average maturity of our fixed-income portfolio to achieve economic returns that correlate to certain broad-based fixed-income indices using exchange-traded option and futures contracts and over-the-counter swap and option contracts. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.

Securities held in our equity investments portfolio are subject to market price risk. Market price risk is managed relative to broad-based global and domestic equity indices using certain convertible preferred investments, options, futures, and swap contracts not designated as hedging instruments. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.

Our fixed-income portfolio is diversified and consists primarily of investment-grade securities. We use credit default swap contracts to manage credit exposures relative to broad-based indices and to facilitate portfolio diversification. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.

Certain of our counterparty agreements for derivative instruments contain provisions that require our issued and outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain minimum liquidity of $1.0 billion. To the extent we fail to meet these requirements, we will be required to post collateral, similar to the standard convention related to over-the-counter derivatives. As of December 31, 2019, our long-term unsecured debt rating was AAA, and cash investments were in excess of $1.0 billion. As a result, no collateral was required to be posted.

The following table presents the notional amounts of our outstanding derivative instruments measured in U.S. dollar equivalents:

	Derivative				Derivative		Derivative			Derivative
(In millions)	Assets				Liabilities		Assets			Liabilities


	December 31, 2019						June 30, 2019
Designated as Hedging Instruments

Foreign exchange contracts	$	33		$	(24	)	$	0		$	(93	)
Interest rate contracts		0			(11	)		0			0

Not Designated as Hedging Instruments

Foreign exchange contracts		165			(148	)		204			(172	)
Other contracts		33			(4	)		46			(7	)


Gross amounts of derivatives		231			(187	)		250			(272	)
Gross amounts of derivatives offset in the balance sheet		(85	)		86			(113	)		114
Cash collateral received		0			(93	)		0			(78	)


Net amounts of derivatives	$	146		$	(194	)	$	137		$	(236	)


Reported as

Short-term investments	$	22		$	0		$	(13	)	$	0
Other current assets		133			0			146			0
Other long-term assets		(9	)		0			4			0
Other current liabilities		0			(150	)		0			(221	)
Other long-term liabilities		0			(44	)		0			(15	)


Total	$	146		$	(194	)	$	137		$	(236	)

Gross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected to offset were $227 million and $187 million, respectively, as of December 31, 2019, and $247 million and $272 million, respectively, as of June 30, 2019.

The following table presents the fair value of our derivatives instruments on a gross basis:

(In millions)	Level 1			Level 2		Level 3		Total


December 31, 2019

Derivative assets	$	1	$	227		$	3	$	231
Derivative liabilities		0		(187	)		0		(187	)

June 30, 2019

Derivative assets		0		247			3		250
Derivative liabilities		0		(272	)		0		(272	)

Gains (losses) on derivative instruments recognized in our consolidated income statements were as follows:

	Three Months Ended December 31,										Six Months Ended December 31,
	2019					2018					2019					2018

(In millions)	Revenue		Other Income (Expense), Net			Revenue		Other Income (Expense), Net			Revenue		Other Income (Expense), Net			Revenue		Other Income (Expense), Net


Designated as Fair Value Hedging Instruments

Foreign exchange contracts
Derivatives	$	0	$	23		$	0	$	(184	)	$	0	$	53		$	0	$	(62	)
Hedged items		0		(26	)		0		184			0		(59	)		0		62
Excluded from effectiveness assessment		0		42			0		45			0		83			0		73
Interest rate contracts
Derivatives		0		(14	)		0		0			0		(13	)		0		0
Hedged items		0		13			0		0			0		12			0		0

Designated as Cash Flow Hedging Instruments

Foreign exchange contracts
Amount reclassified from accumulated other comprehensive income		0		8			88		0			0		3			180		0
Excluded from effectiveness assessment		0		0			0		(14	)		0		0			0		(41	)

Not Designated as Hedging Instruments

Foreign exchange contracts		0		52			0		(79	)		0		(119	)		0		(109	)
Other contracts		0		1			0		8			0		2			0		5

Gains (losses), net of tax, on derivative instruments recognized in our consolidated comprehensive income statements were as follows: