DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2021

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, 2021 and 2020 were as follows:


US$ MILLIONS	Note	2021		2020
Foreign exchange contracts	(a)	$	4,383	$	3,274
Interest rates swaps and other	(b)	10,095		11,437
Commodity contracts		424		32
		$	14,902	$	14,743

The following table presents the change in fair values of Brookfield Infrastructure’s derivative positions during the years ended December 31, 2021 and 2020:


US$ MILLIONS	Unrealized Gains on Derivative Financial Assets		Unrealized Losses on Derivative Financial Liabilities		Net Change During 2021		Net Change During 2020
Foreign exchange derivatives	$	145	$	(45)	$	100	$	(213)
Interest rate derivatives	454		(156)		298		(173)
Commodity derivatives	—		(43)		(43)		(17)
	$	599	$	(244)	$	355	$	(403)

(a)Foreign Exchange

Brookfield Infrastructure held the following foreign exchange contracts with notional amounts at December 31, 2021 and 2020.


	Notional Amount (U.S. Dollars)				Average Exchange Rate
US$ MILLIONS	2021		2020		2021		2020
Foreign exchange contracts
British pounds	$	1,871	$	1,404	$	1.35	$	1.31
Canadian dollars	679		612		0.75		0.75
Australian dollars	642		609		0.73		0.69
European Union euros	367		239		1.21		1.21
Indian rupees	216		308		0.013		0.013
Colombian pesos	27		28		0.0002		0.0003
Peruvian soles	9		12		0.26		0.28
Chilean pesos	—		34		—		0.0013
Other(1)	572		28		—		—
	$	4,383	$	3,274

(1)Includes foreign exchange contracts at our operating subsidiaries intended to offset the risk associated with non-recourse borrowings in currencies other than the functional currency of the underlying operation.

(b)Interest Rates

At December 31, 2021, Brookfield Infrastructure held interest rate and cross currency interest rate swap contracts having an aggregate notional amount of $10,095 million (2020: $11,265 million). Brookfield Infrastructure has inflation linked swaps with an aggregate notional amount of $nil (2020: $172 million). Our partnership has an aggregate notional amount of $4,698 million floating interest rate derivatives that are benchmarked against the LIBOR, $440 million floating interest rates derivatives that are benchmarked against the bank bill swap rate and $1,741 million floating interest rates derivatives that are benchmarked against the CDOR.

It is currently expected that the Secured Overnight Financing Rate will replace US$ LIBOR prior to June 30, 2023. As at December 31, 2021, none of our partnership’s floating rate borrowings have been impacted by this 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, 2021 and the comparative notional amounts at December 31, 2020, for both derivatives that are classified as fair value through profit or loss and derivatives that qualify for hedge accounting:


	2021								2020
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	$	1,021	$	1,082	$	—	$	2,103	$	1,723
Interest rate derivatives
Interest rate swaps, cross currency interest rate swaps and other	579		107		—		686		779
Inflation linked swaps	—		—		—		—		172
Commodity contracts	424		—		—		424		32
	$	2,024	$	1,189	$	—	$	3,213	$	2,706
Elected for hedge accounting
Foreign exchange derivatives	$	1,211	$	497	$	572	$	2,280	$	1,551
Interest rate derivatives
Interest rate and cross currency interest rate swaps	324		8,246		839		9,409		10,486
	$	1,535	$	8,743	$	1,411	$	11,689	$	12,037

The following table classifies derivatives elected for hedge accounting during the years ended December 31, 2021 and 2020 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:


	2021						2020
AS AT AND FOR THE YEARS ENDED (MILLIONS)	Notional		Effective Portion		Ineffective Portion		Notional		Effective Portion		Ineffective Portion
Cash flow hedges	$	9,981	$	288	$	28	$	11,089	$	(160)	$	9
Net investment hedges	1,708		62		(14)		948		32		2
	$	11,689	$	350	$	14	$	12,037	$	(128)	$	11

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.