Foreign exchange option contracts, maximum maturities



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| [Table of Contents](#if498f6f02e5a474790944835d386b56b_7) | Alphabet Inc. |

Non-marketable equity securitiesThe following is a summary of unrealized gains and losses recorded in other income (expense), net, which are included as adjustments to the carrying value of non-marketable equity securities held as of the end of the period (in millions):

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|  |  |  | Three Months Ended |
|  |  |  | March 31, |
|  |  |  |  |  | 2021 |  | 2022 |
| Unrealized gains on non-marketable equity securities |  |  |  |  | $ | 4,678  |  |  | $ | 838  |  |
| Unrealized losses on non-marketable equity securities (including impairment) |  |  |  |  | (2) |  |  | (378) |  |
| Total unrealized gain (loss) recognized on non-marketable equity securities |  |  |  |  | $ | 4,676  |  |  | $ | 460  |  |

During the three months ended March 31, 2022, included in the $28.7 billion of non-marketable equity securities held as of the end of the period, $3.1 billion were measured at fair value resulting in a net unrealized gain of $0.5 billion.Equity securities accounted for under the Equity MethodAs of December 31, 2021 and March 31, 2022, equity securities accounted for under the equity method had a carrying value of approximately $1.5 billion and $1.4 billion, respectively. Our share of gains and losses, including impairments, are included as a component of other income (expense), net, in the Consolidated Statements of Income. See Note 6 for further details on other income (expense), net.Derivative Financial InstrumentsWe enter into derivative instruments to manage risks relating to our ongoing business operations. The primary risk managed with derivative instruments is foreign exchange risk. We use foreign currency contracts to reduce the risk that our cash flows, earnings, and investment in foreign subsidiaries will be adversely affected by foreign currency exchange rate fluctuations. We also enter into derivative instruments to partially offset our exposure to other risks and enhance investment returns.We recognize derivative instruments as either assets or liabilities in the Consolidated Balance Sheets at fair value and classify the derivatives primarily within Level 2 in the fair value hierarchy. We present our collar contracts (an option strategy comprised of a combination of purchased and written options) at net fair values where both the purchased and written options are with the same counterparty. For other derivative contracts, we present at gross fair values. We primarily record changes in the fair value in the Consolidated Statements of Income as either other income (expense), net, or revenues, or in the Consolidated Balance Sheets in AOCI, as discussed below.We enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. Further, we enter into collateral security arrangements that provide for collateral to be received or pledged when the net fair value of certain financial instruments fluctuates from contractually established thresholds. Cash collateral received related to derivative instruments under our collateral security arrangements are included in other current assets with a corresponding liability. Cash and non-cash collateral pledged related to derivative instruments under our collateral security arrangements are included in other current assets.Cash Flow HedgesWe designate foreign currency forward and option contracts (including collars) as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the U.S. dollar. These contracts have maturities of 24 months or less.Cash flow hedge amounts included in the assessment of hedge effectiveness are deferred in AOCI and subsequently reclassified to revenue when the hedged item is recognized in earnings. We exclude the change in forward points and time value from our assessment of hedge effectiveness. The initial value of the excluded component is amortized on a straight-line basis over the life of the hedging instrument and recognized in revenues. The difference between fair value changes of the excluded component and the amount amortized to revenues is recorded in AOCI. If the hedged transactions become probable of not occurring, the corresponding amounts in AOCI are reclassified to other income (expense), net in the period of de-designation.As of March 31, 2022, the net accumulated gain on our foreign currency cash flow hedges before tax effect was $356 million, which is expected to be reclassified from AOCI into earnings within the next 12 months.15
