The difference between the return on a domestic asset and the effective return on a foreign asset depends on the risk of the assets and the degree of risk aversion. If the effective return...

The difference between the return on a domestic asset and the effective return on a foreign asset depends on the risk of the assets and the degree of risk aversion.

If the effective return differential is zero, then there would be no risk premium. If the effective return differential is positive, then there would be a positive risk premium on the domestic currency.