PARTIV Note10—DerivativeInstruments PayPalHoldings,Inc. NotestoConsolidatedFinancialStatements—(Continued) currency exchange contracts, generally with maturities of 18 months or less, to reduce the volatility of cash flows primarily related to forecasted revenues denominated in foreign currencies. The objective of these foreign currency exchange contracts is to help mitigate the risk that the U.S. dollar-equivalent cash flows are adversely affected by changes in the applicable U.S. dollar/foreign currency exchange rate. These derivative instruments are designated as cash flow hedges andaccordingly,thederivativesgainor loss is initially reported as a componentof AOCI and subsequentlyreclassifiedinto revenue in the same period the forecasted transaction affects earnings. We evaluate the effectiveness of our foreign currency exchange contracts on a quarterly basis by comparing the critical terms of the derivative instruments with the critical terms of the forecasted cash flows of the hedged item; if the critical terms are the same, we conclude the hedge will beperfectlyeffective. We do not exclude any componentof the changesin fair value of the derivative instruments from the assessment of hedge effectiveness. We report cash flows arising from derivative instruments consistent with the classification of cash flows from the underlying hedged items that these derivatives are hedging. Accordingly, the cash flows associated with derivatives designated as cash flow hedges are classified in cash flows from operating activities on ourconsolidatedstatementsofcashflows. AsofDecember31,2022,weestimatedthat$110millionofnetderivativegainsrelatedtoourcashflowhedgesincludedin AOCIareexpectedto be reclassified into earnings within the next 12 months. During the years ended December 31, 2022, 2021, and 2020, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction. If we elect to discontinue our cash flow hedges and it is probable that the original forecasted transaction will occur, we continue to report the derivatives gain or loss in AOCI until the forecasted transaction affects earnings, at which point we also reclassify it into earnings. Gains and losses on derivatives held after we discontinue our cash flow hedges and on derivative instruments that are not designated as cash flow hedges are recorded in the same financial statementline item to which the derivativerelates. NetInvestmentHedges We use forward foreign currency exchange contracts to reduce the foreign currency exchange risk related to our investment in certain foreign subsidiaries. These derivatives are designated as net investment hedges and accordingly, the gains and losses on the portion of the derivatives included in the assessment of hedge effectiveness is recorded in AOCI as part of foreign currency translation. We exclude forward points from the assessment of hedge effectiveness and recognize them in other income (expense), net on a straight-line basis over the life of the hedge. The accumulated gains and losses associated with these instruments will remain in AOCI until the foreign subsidiaries are sold or substantially liquidated, at which point they will be reclassified into earnings. The cash flows associated with derivatives designated as a netinvestmenthedgeareclassifiedincashflowsfrominvestingactivitiesonourconsolidatedstatementsofcashflows. Wehavenot reclassified any gains or losses related to net investment hedges from AOCI into earnings during any of the periodspresented. ForeignCurrencyExchangeContractsnotDesignatedasHedgingInstruments Wehaveaforeigncurrencyexposuremanagementprograminwhichweuseforeigncurrencyexchangecontractstooffset the foreign currency exchangerisk of our assets and liabilities denominatedin currenciesother than the functional currency of our subsidiaries. These contracts are not designated as hedging instruments and reduce, but do not entirely eliminate, the impact of foreign currency exchange rate movements on our assets and liabilities. The gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities are recorded in other income (expense), net, which are offset by the gains and losses on these foreign currency exchange contracts. The cash flows associated with our non-designated derivatives used to hedge foreign currency denominated monetary assets and liabilities are classified in cash flows from operating activities on our consolidated statements of cash flows. 94 •2022AnnualReport