Fair Value Measurements The fair values of our financial assets and liabilities as of December 26, 2015 and December 27, 2014 are categorized as follows: 2015 2014 Assets(a) Liabilities(a) Assets(a) Liabilities(a) Available-for-sale securities: Equity securities (b) $ 127 $ - $ 124 $ Debt securities (c) 7,231 - 3,167 $ 7,358 $ - $ 3,291 $ Short-term investments (d) $ 193 $ - $ 197 $ - Prepaid forward contracts (e) $ 27 $ - $ 26 $ Deferred compensation (1) $ - $ 474 $ - $ 504 Derivatives designated as fair value hedging instruments: Interest rate (g) $ 129 $ 12 $ 140 $ - Derivatives designated as cash flow hedging instruments: Foreign exchange (h) $ 76 $ 6 $ 76 $ 12 Interest rate (9) 311 1 117 Commodity 0 7 3 10 $ 324 $ 80 $ 139 Derivatives not designated as hedging instruments: Foreign exchange (h) 8 $ 10 $ 12 $ 13 Interest rate (g) . 44 56 57 75 Commodity - 12 141 18 166 $ 64 $ 207 $ 87 $ 254 Total derivatives at fair value) $ 269 $ 543 $ 307 $ 393 Total $ 7,847 $ 1,017 $ 3,821 $ 897 (a) Unless otherwise noted, financial assets are classified on our Consolidated Balance Sheet within prepaid expenses and other current assets and other assets. Financial liabilities are classified on our Consolidated Balance Sheet within accounts payable and other current liabilities and other liabilities. Unless specifically indicated, all financial assets and liabilities are categorized as Level 2 assets or liabilities. (b) Based on the price of common stock. Categorized as a Level 1 asset. These equity securities are classified as investments in non-controlled affiliates. (c) Based on quoted broker prices or other significant inputs derived from or corroborated by observable market data. As of December 26, 2015, $4.5 billion and $2.7 billion of debt securities were classified as cash equivalents and short-term investments, respectively. As of December 27, 2014, $0.8 billion and $2.4 billion of debt securities were classified as cash equivalents and short-term investments, respectively. All of the Company's available-for-sale debt securities have maturities of one year or less. (d) Based on the price of index funds. Categorized as a Level 1 asset. These investments are classified as short-term investments and are used to manage a portion of market risk arising from our deferred compensation liability. (e) Based primarily on the price of our common stock. (f) Based on the fair value of investments corresponding to employees' investment elections. (g) Based on LIBOR forward rates. As of December 26, 2015 and December 27, 2014, amounts related to non-designated instruments are presented on a net basis on our Consolidated Balance Sheet. (h) Based on recently reported market transactions of spot and forward rates. (i) Based on recently reported market transactions, primarily swap arrangements. (1) Unless otherwise noted, derivative assets and liabilities are presented on a gross basis on our Consolidated Balance Sheet. Amounts subject to enforceable master netting arrangements or similar agreements which are not offset on the Consolidated Balance Sheet as of December 26, 2015 and December 27, 2014 were immaterial. Collateral received against any of our asset positions was immaterial. The carrying amounts of our cash and cash equivalents and short-term investments approximate fair value due to their short-term maturity. The fair value of our debt obligations as of December 26, 2015 and December 27, 2014 was $35 billion and $31 billion, respectively, based upon prices of similar instruments in the marketplace, which are considered Level 2 inputs. Pre-tax losses/(gains) on our derivative instruments are categorized as follows: Fair Value/Non- designated Hedges Cash Flow Hedges Losses/(Gains) Reclassified from Losses/(Gains) Accumulated Other Losses/(Gains) Recognized in Comprehensive Loss Recognized in Accumulated Other into Income Income Statementla) Comprehensive Loss Statement(b) 2015 2014 2015 2014 2015 2014 Foreign exchange $ (14) $ 2 $ (112) $ (70) $ (97) $ (16) Interest rate 17 21195 135 174 233 Commodity 218 170 12 2 3 20 32 Total $ 221 $ 193 $ 95 $ 88 $ 97 $ 249 (a) Foreign exchange derivative gains/losses are primarily included in selling, general and administrative expenses. Interest rate derivative gains/losses are primarily from fair value hedges and are included in interest expense. These gains/losses are substantially offset by increases/decreases in the value of the underlying debt, which are also included in interest expense. Commodity derivative gains/losses are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. (b) Foreign exchange derivative gains/losses are primarily included in cost of sales. Interest rate derivative gains/losses are included in interest expense. Commodity derivative gains/losses are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. Based on current market conditions, we expect to reclassify net gains of $33 million related to our cash flow hedges from accumulated other comprehensive loss into net income during the next 12 months. Review the Fair Value Measurement footnote for Pepsico. 1. Pepsico shows derivatives designated as fair value hedging instruments as assets of $129 million. In your own words, describe a fair value hedge. 2. Interest rate swaps are based on LIBOR forward rates. You will need to look this one up. What does LIBOR stand for? 3. What five currencies are included in the LIBOR? 4. The text tells us that companies must disclose the net amount of gain or loss reported in earnings. Indicate the amount of gain or loss reported in earnings for: Fair Value/Non-designated Hedges: Cash Flow Hedges: Indicate if it is a net gain or loss