

	2019										2018
	Level 1		Level 2			Level 3		Net Balance			Level 1		Level 2			Level 3		Net Balance
Assets
Derivatives	$	—	$	58		$	—	$	58		$	—	$	74		$	—	$	74
Investment securities	24		—			259		283			39		—			288		327
Total assets	24		58			259		341			39		74			288		401

Liabilities
Derivatives	—		(27		)	—		(27		)	—		(82		)	—		(82		)
Total liabilities	$	—	$	(27	)	$	—	$	(27	)	$	—	$	(82	)	$	—	$	(82	)

The following table provides a reconciliation of recurring Level 3 fair value measurements for investment securities:



	2019			2018
Balance at beginning of year	$	288		$	304
Purchases	7			75
Proceeds at maturity	(38		)	(90		)
Unrealized gains (losses) recognized in accumulated other comprehensive income (loss)	2			(1		)
Balance at end of year	$	259		$	288

The most significant unobservable input used in the valuation of our Level 3 instruments is the discount rate. Discount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would result in a decrease in the fair value of our investment securities. There are no unrealized gains or losses recognized in the consolidated and combined statement of income (loss) on account of any Level 3 instrument still held at the reporting date. We hold $111 million and $149 million of these investment securities on behalf of GE at December 31, 2019 and 2018, respectively.



	2019								2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investment securities
Non-U.S. debt securities ⁽¹⁾	$	257	$	2	$	—	$	259	$	288	$	—	$	—	$	288
Equity securities ⁽²⁾	24		—		—		24		39		—		—		39
Total	$	281	$	2	$	—	$	283	$	327	$	—	$	—	$	327

Our financial instruments include cash and equivalents, current receivables, investments, accounts payable, short and long-term debt, and derivative financial instruments. Except for long-term debt, the estimated fair value of these financial instruments at December 31, 2019 and 2018 approximates their carrying value as reflected in our consolidated and combined financial statements. For further information on the fair value of our debt, see "Note 11. Borrowings."



	2019					2018
	Assets		(Liabilities)			Assets		(Liabilities)
Derivatives accounted for as hedges
Currency exchange contracts	$	11	$	—		$	—	$	(7	)

Derivatives not accounted for as hedges
Currency exchange contracts and other	47		(27		)	74		(75		)
Total derivatives	$	58	$	(27	)	$	74	$	(82	)

Derivatives are classified in the consolidated statements of financial position captions "All other current assets," "All other assets," "All other current liabilities," and "All other liabilities" depending on their respective maturity date.

As of December 31, 2019 and 2018, $52 million and $67 million of derivative assets are recorded in "All other current assets" and $6 million and $7 million are recorded in "All other assets" of the consolidated statements of financial position, respectively. As of December 31, 2019 and 2018, $24 million and $79 million of derivative liabilities are recorded in "All other current liabilities" and $3 million and $3 million are recorded in "All other liabilities" of the consolidated statements of financial position, respectively.

We buy, manufacture and sell components and products as well as provide services across global markets. These activities expose us to changes in foreign currency exchange rates and commodity prices, which can adversely affect revenues earned and costs of operating our business. When the currency in which we sell equipment differs from the primary currency (known as its functional currency) and the exchange rate fluctuates, it will affect the revenue we earn on the sale. These sales and purchase transactions also create receivables and payables denominated in foreign currencies, along with other monetary assets and liabilities, which expose us to foreign currency gains and losses based on changes in exchange rates. Changes in the price of a raw material that we use in manufacturing can affect the cost of manufacturing. We use derivatives to mitigate or eliminate these exposures.

We use cash flow hedging primarily to reduce or eliminate the effects of foreign exchange rate changes on purchase and sale contracts. Accordingly, the vast majority of our derivative activity in this category consists of currency exchange contracts. We also use commodity derivatives to reduce or eliminate price risk on raw materials purchased for use in manufacturing.

Changes in the fair value of cash flow hedges are recorded in a separate component of equity (referred to below as Accumulated Other Comprehensive Income, or AOCI) and are recorded in earnings in the period in which the hedged transaction occurs. The table below summarizes this activity by hedging instrument.



	Gain (Loss) Recognized in AOCI							Gain (Loss) Reclassified from AOCI to Earnings
	2019		2018			2017		2019			2018			2017
Currency exchange contracts	$	13	$	(6	)	$	8	$	(1	)	$	(1	)	$	(7	)

We expect to transfer $10 million to earnings as a gain in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. At December 31, 2019 and 2018, the maximum term of derivative instruments that hedge forecasted transactions was one year and two years, respectively.

These derivatives are not designated as hedges from an accounting standpoint (and therefore we do not apply hedge accounting to the relationship) but otherwise serve the same economic purpose as other hedging arrangements. Some economic hedges are used when changes in the carrying amount of the hedged item are already recorded in earnings in the same period as the derivative, making hedge accounting unnecessary. For some other types of economic hedges, changes in the fair value of the derivative are recorded in earnings currently but changes in the value of the forecasted foreign currency cash flows are only recognized in earnings when they occur. As a result, even though the derivative is an effective economic hedge, there is a net effect on earnings in each period due to differences in the timing of earnings recognition between the derivative and the hedged item.

These derivatives are marked to fair value through earnings each period. The effects are reported in "Selling, general and administrative" in the consolidated and combined statement of income (loss). In general, the income (loss) effects of the hedged item are recorded in the same consolidated and combined financial statement line as the derivative. The income (loss) effect of economic hedges, after considering offsets related to income (loss) effects of hedged assets and liabilities, is substantially offset by changes in the fair value of forecasted transactions that have not yet affected income (loss).

The following table summarizes the gains (losses) from derivatives not designated as hedges on the consolidated and combined statements of income (loss):



Derivatives not designated as hedging instruments	Consolidated and combined statement of income caption	2019			2018			2017
Currency exchange contracts ⁽¹⁾	Cost of goods sold	$	(6	)	$	(12	)	$	76
Currency exchange contracts	Selling, general and administrative	(22		)	9			45
Commodity derivatives	Cost of goods sold	2			(1		)	1
Other derivatives	Other non operating income (loss), net	2			—			—
Total ⁽²⁾		$	(24	)	$	(4	)	$	122

The notional amount of a derivative is the number of units of the underlying (for example, the notional principal amount of the debt in an interest rate swap). A substantial majority of the outstanding notional amount of $5.7 billion and $6.4 billion at December 31, 2019 and 2018, respectively, is related to hedges of anticipated sales and purchases in foreign currency, commodity purchases, and contractual terms in contracts that are considered embedded derivatives and for intercompany borrowings in foreign currencies. We generally disclose derivative notional amounts on a gross basis to indicate the total counterparty risk. Where we have gross purchase and sale derivative contracts for a particular currency, we look to execute these contracts with the same counterparty to reduce our exposure. The corresponding net notional amounts were $1.8 billion at December 31, 2019 and $2.8 billion at December 31, 2018.

Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our agreements) on an individual counterparty basis.

As of December 31, 2019 and 2018, the carrying amount of equity securities without readily determinable fair values was $637 million and $542 million, respectively. In 2019, certain of these equity instruments were remeasured to fair value as of the date that an observable transaction occurred, which resulted in the Company recording an unrealized gain of $19 million.