Barton Wilson, a junior analyst, is a new hire at a money center bank. He has been assigned to help Juanita Chevas, CFA, in the currency trading department. Together, Wilson and Chevas are working on the development of new trading software designed to detect profitable opportunities in the foreign exchange market. Obviously, they are interested in risk-free arbitrage opportunities. However, they have also been instructed to investigate the possibility of longer-term currency exposures that are not necessarily risk-free. To test the logic of their new software, Wilson gathers the following market data: * Spot JPY/USD exchange rate = 120. . Spot EUR/USD exchange rate = 0.7224. . U.S. risk-free interest rate = 7%. . Eurozone risk-free rate = 9.08%. . Japanese risk-free rate = 3.88%. . Yield curves in all three currencies are flat. In addition to in-house currency transactions, the new software program is also intended to provide insight into currency exposure and hedging needs for the bank's major customers. These customers typically include large multinational firms. Essentially, the bank wants to provide consulting services to its clients conceming which currency exposures offer the most lucrative opportunities. In this process, the bank will rely on deviations from international parity conditions as an indicator of long-term currency movements. Several bank customers have engaged in a carry trade with Bundovian Bunco (BU) as the investment currency and the USD as the funding currency. The bank will provide risk management advice to customers as it pertains to their FX carry trades. Wilson obtains the following data from the econometrics department: . JPY/USD spot rate one year ago = 118. . EUR/USD spot rate one year ago = 0.7200. * Anticipated and historical U.S. annual inflation = 3%. . Anticipated and historical Japanese annual inflation = 0%. . Anticipated and historical Eurozone annual inflation = 5%. One of the bank's major customers has significant business interests in Japan and in the Eurozone and has long exposure to both currencies. The customer has traditionally hedged all currency risk. However, the customer's new risk manager has decided to leave some currency exposure unhedged in an attempt to profit from long-term currency exposure. Based on the assumption that international parity conditions will hold in the long run, should the JPY and Euro currency