An investment manager based in Germany hedges a portfolio of UK gilts with a 3-month forward contract. The current spot rate is GBP0.833/EUR and the 90-day forward rate is GBP0.856/EUR. At the end of 3 months, the gilts have risen in value by 2.50% (in GBP terms) and the spot rate is now GBP0.82/EUR. What was the true cost of the forward contract?

(A): 17.287% annualized

(B): 14.787% annualized.

(C): 7.287% annualized.

(D): 11.044% annualized

(E): None of the options in this question are correct.

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