The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair values are determined by reference to quoted bid or ask prices, as appropriate. Where bid and ask prices are unavailable, the closing price of the most recent transaction of that instrument is used. In the absence of an active market, fair values are determined based on prevailing market rates such as bid and ask prices, as appropriate for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option pricing models and discounted cash flow analyses, using observable market inputs.

Fair values determined using valuation models require the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates. In determining those assumptions, Brookfield Infrastructure looks primarily to external readily observable market inputs such as interest rate yield curves, currency rates, and price and rate volatilities as applicable. The fair value of interest rate swap contracts which form part of financing arrangements is calculated by way of discounted cash flows using market interest rates and applicable credit spreads.

Financial instruments classified as fair value through profit or loss are carried at fair value on the Consolidated Statements of Financial Position. Changes in the fair values of financial instruments classified as fair value through profit or loss are recognized in profit or loss. Mark-to-market adjustments on hedging items for those in an effective hedging relationship and changes in the fair value of securities designated as fair value through other comprehensive income are recognized in other comprehensive income.


US$ MILLIONS Financial Instrument Classification
MEASUREMENT BASIS	Fair value through profit or loss		Fair value through OCI		Amortized Cost		Total
Financial assets
Cash and cash equivalents	$	—	$	—	$	1,275	$	1,275
Accounts receivable and other	—		—		2,275		2,275
Financial assets (current and non-current)(1)	582		—		337		919
Marketable securities	392		295		—		687
Total	$	974	$	295	$	3,887	$	5,156

Financial liabilities
Corporate borrowings	$	—	$	—	$	2,822	$	2,822
Non-recourse borrowings (current and non-current)	—		—		19,999		19,999
Accounts payable and other	—		—		2,201		2,201
Financial liabilities (current and non-current)(1)	641		—		2,253		2,894
Lease liabilities	—		—		3,461		3,461
Preferred shares(2)	—		—		20		20
Total	$	641	$	—	$	30,756	$	31,397


US$ MILLIONS Financial Instrument Classification
MEASUREMENT BASIS	Fair value through profit or loss		Fair value through OCI		Amortized Cost		Total
Financial assets
Cash and cash equivalents	$	—	$	—	$	867	$	867
Accounts receivable and other	—		—		2,031		2,031
Financial assets (current and non-current)(1)	523		36		322		881
Marketable securities	323		203		—		526
Total	$	846	$	239	$	3,220	$	4,305

Financial liabilities
Corporate borrowings	$	—	$	—	$	3,158	$	3,158
Non-recourse borrowings (current and non-current)	—		—		20,020		20,020
Accounts payable and other	—		—		2,745		2,745
Financial liabilities (current and non-current)(1)	931		—		2,443		3,374
Lease liabilities	—		—		3,803		3,803
Preferred shares(2)	—		—		20		20
Total	$	931	$	—	$	32,189	$	33,120


	June 30, 2021				December 31, 2020
US$ MILLIONS	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Cash and cash equivalents	$	1,275	$	1,275	$	867	$	867
Accounts receivable and other	2,275		2,275		2,031		2,031
Financial assets (current and non-current)	919		919		881		881
Marketable securities	687		687		526		526
Total	$	5,156	$	5,156	$	4,305	$	4,305

Financial liabilities
Corporate borrowings(1)	$	2,822	$	2,939	$	3,158	$	3,350
Non-recourse borrowings(2)	19,999		20,095		20,020		20,328
Accounts payable and other (current and non-current)	2,201		2,201		2,745		2,745
Financial liabilities (current and non-current)	2,894		2,894		3,374		3,374
Preferred shares(3)	20		20		20		20
Total	$	27,936	$	28,149	$	29,317	$	29,817

2.Non-recourse borrowings are classified under level 2 of the fair value hierarchy with the exception of certain borrowings at our U.K. port operation, which are classified under level 1. For level 2 fair values, future cash flows are estimated based on observable forward interest rates at the end of the reporting period.

Brookfield Infrastructure uses derivatives and non-derivative financial instruments to manage or maintain exposures to interest and currency risks. For certain derivatives which are used to manage exposures, Brookfield Infrastructure determines whether hedge accounting can be applied. When hedge accounting can be applied, a hedge relationship can be designated as a fair value hedge, cash flow hedge or a hedge of foreign currency exposure of a net investment in a foreign operation with a functional currency other than the U.S. dollar. To qualify for hedge accounting, the derivative must be designated as a hedge of a specific exposure and the hedging relationship must meet all of the hedge effectiveness requirements in accomplishing the objective of offsetting changes in the fair value or cash flows attributable to the hedged risk both at inception and over the life of the hedge. If it is determined that the hedging relationship does not meet all of the hedge effectiveness requirements, hedge accounting is discontinued prospectively.

Brookfield Infrastructure uses interest rate swaps to hedge the variability in cash flows related to a variable rate asset or liability and highly probable forecasted issuances of debt. The settlement dates coincide with the dates on which the interest is payable on the underlying debt, and the amount accumulated in equity is reclassified to profit or loss over the period that the floating rate interest payments on debt affect profit or loss. For the three and six-month periods ended June 30, 2021, losses of $19 million and gains of $160 million, respectively (2020: losses of $16 million and $265 million) were recorded in other comprehensive income for the effective portion of the cash flow hedges. As of June 30, 2021, there was a net derivative asset balance of $34 million relating to derivative contracts designated as cash flow hedges (December 31, 2020: liability balance of $150 million).

Brookfield Infrastructure uses foreign exchange contracts and foreign currency denominated debt instruments to manage its foreign currency exposures arising from net investments in foreign operations having a functional currency other than the U.S. dollar. For the three and six-month periods ended June 30, 2021, losses of $47 million and $41 million, respectively (2020: losses of $4 million and gains of $130 million) were recorded in other comprehensive income relating to the hedges of net investments in foreign operations. Further, for the three and six-month periods ended June 30, 2021, Brookfield Infrastructure paid $18 million and $17 million, respectively (2020: received $1 million and $83 million) relating to the settlement of foreign exchange contracts in the period. As of June 30, 2021, there was a net unrealized derivative liability balance of $90 million relating to derivative contracts designated as net investment hedges (December 31, 2020: net unrealized derivative liability balance of $49 million).

•Level 2 – Inputs other than quoted prices included in Level 1 are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Fair valued assets and liabilities that are included in this category are primarily certain derivative contracts and other financial assets carried at fair value in an inactive market.

•Level 3 – Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to determining the estimate. Fair valued assets and liabilities that are included in this category are interest rate swap contracts, derivative contracts, certain equity securities carried at fair value which are not traded in an active market and the non-controlling interest’s share of net assets of limited life funds.

The fair value of our partnership’s financial assets and financial liabilities are measured at fair value on a recurring basis. The following table summarizes the valuation techniques and significant inputs for Brookfield Infrastructure’s financial assets and financial liabilities:


US$ MILLIONS	Fair value hierarchy	June 30, 2021		December 31, 2020
Marketable securities	Level 1(1)	$	687	$	526
Foreign currency forward contracts	Level 2(2)
Financial asset		$	115	$	115
Financial liability		185		251
Interest rate swaps & other	Level 2(2)
Financial asset		$	461	$	438
Financial liability		364		561
Other contracts	Level 3(3)
Financial asset		$	6	$	6
Financial liability		92		119

2.Valuation technique: Discounted cash flow. Future cash flows are estimated based on forward exchange and interest rates (from observable forward exchange and interest rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects our credit risk and the credit risk of various counterparties.

Assets and liabilities measured at fair value on a recurring basis include $1,269 million (2020: $1,085 million) of financial assets and $641 million (2020: $931 million) of financial liabilities which are measured at fair value using valuation inputs based on management’s best estimates. During the three-month period ended June 30, 2021, no transfers were made between level 1 and 2 or level 2 and 3.