DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2020

Brookfield Infrastructure’s activities expose it to a variety of financial risks, including market risk (i.e. currency risk, interest rate risk, commodity risk and other price risk), credit risk and liquidity risk. Brookfield Infrastructure and its subsidiaries selectively use derivative financial instruments principally to manage these risks.

The aggregate notional amount of Brookfield Infrastructure’s derivative positions at December 31, 2020 and 2019 were as follows:


US$ MILLIONS	Note	2020		2019
Foreign exchange contracts	(a)	$	3,274	$	4,626
Interest rates swaps and other	(b)	11,437		11,163
Commodity contracts		32		66
		$	14,743	$	15,855

The following table presents the change in fair values of Brookfield Infrastructure’s derivative positions during the years ended December 31, 2020 and 2019:


US$ MILLIONS	Unrealized Gains on Derivative Financial Assets		Unrealized Losses on Derivative Financial Liabilities		Net Change During 2020		Net Change During 2019
Foreign exchange derivatives	$	196	$	(409)	$	(213)	$	(128)
Interest rate derivatives	460		(633)		(173)		(31)
Commodity derivatives	—		(17)		(17)		—
	$	656	$	(1,059)	$	(403)	$	(159)

(a)Foreign Exchange

Brookfield Infrastructure held the following foreign exchange contracts with notional amounts at December 31, 2020 and 2019.


	Notional Amount (U.S. Dollars)				Average Exchange Rate
US$ MILLIONS	2020		2019		2020		2019
Foreign exchange contracts
British pounds	$	1,404	$	2,882	$	1.31	$	1.31
Canadian dollars	612		4		0.75		0.76
Australian dollars	609		1,102		0.69		0.73
Indian rupees	308		—		0.013		—
European Union euros	239		365		1.21		1.25
Chilean pesos	34		242		0.0013		0.0015
Colombian pesos	28		19		0.0003		0.0003
Peruvian soles	12		12		0.28		0.29
Other	28		—		—		—
	$	3,274	$	4,626

(b)Interest Rates

At December 31, 2020, Brookfield Infrastructure held interest rate and cross currency interest rate swap contracts having an aggregate notional amount of $11,265 million (2019: $10,996 million). Brookfield Infrastructure has inflation linked swaps with an aggregate notional amount of $172 million (2019: $167 million). Our partnership has an aggregate notional amount of $4,829 million floating interest rate derivatives that are benchmarked against the LIBOR, $681 million floating interest rates derivatives that are benchmarked against the bank bill swap rate and $1,533 million floating interest rates derivatives that are benchmarked against the CDOR that could be impacted by the IBOR reform. Please refer to Note 3, Significant Accounting Policies, for more details.

Other Information Regarding Derivative Financial Instruments

The following table presents the notional amounts underlying Brookfield Infrastructure’s derivative instruments by term to maturity as at December 31, 2020 and the comparative notional amounts at December 31, 2019, for both derivatives that are classified as fair value through profit or loss and derivatives that qualify for hedge accounting:


	2020								2019
US$ MILLIONS	< 1 year		1 to 5 years		> 5 years		Total Notional Amount		Total Notional Amount
Fair value through profit or loss
Foreign exchange derivatives	$	867	$	856	$	—	$	1,723	$	1,416
Interest rate derivatives
Interest rate swaps, cross currency interest rate swaps and other	75		704		—		779		53
Inflation linked swaps	—		172		—		172		167
Commodity contracts	32		—		—		32		66
	$	974	$	1,732	$	—	$	2,706	$	1,702
Elected for hedge accounting
Foreign exchange derivatives	$	438	$	510	$	603	$	1,551	$	3,210
Interest rate derivatives
Interest rate and cross currency interest rate swaps	429		6,081		3,976		10,486		10,943
	$	867	$	6,591	$	4,579	$	12,037	$	14,153

The following table classifies derivatives elected for hedge accounting during the years ended December 31, 2020 and 2019 as either cash flow hedges or net investment hedges. Changes in the fair value of the effective portion of the hedges are recorded in either other comprehensive income or net income, depending on the hedge classification, whereas changes in the fair value of the ineffective portion of the hedge are recorded in net income:


	2020						2019
AS AT AND FOR THE YEARS ENDED (MILLIONS)	Notional		Effective Portion		Ineffective Portion		Notional		Effective Portion		Ineffective Portion
Cash flow hedges	$	11,089	$	(160)	$	9	$	10,943	$	(33)	$	(1)
Net investment hedges	948		32		2		3,210		(113)		16
	$	12,037	$	(128)	$	11	$	14,153	$	(146)	$	15

Our partnership settles the difference between the contracted fixed and floating rates of its interest rate swaps on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce our partnership’s cash flow exposure resulting from variable interest rates on borrowings. The interest rate swaps and the interest payments on the borrowings occur simultaneously and the amount accumulated in equity is reclassified to profit or loss over the period that the floating rate interest payments on borrowings affect profit or loss.