Deco Australian Fragrance Ltd import French perfume and owes the French exporting company EUR250,000, due in three months. The following information is available: Current spot exchange rate (AUD/EUR) 1.60 Expected spot exchange rate (AUD/EUR) 1.65 and 1.55 with probabilities of 0.4 and

0.6, respectively Premium on EUR call option AUD0.01 Exercise exchange rate 1.61 Time to expiry 3 months Calculate the expected value of Deco Australian Fragrance Ltd payables in Australian dollar terms under an option hedge. Will the decision to hedge be taken?