This thesis deals with the nominal and real convergence for Czech Republic and the Euro zone. It also includes analysis of synchronization of economic development in Czech and European economies for identifying potential risks associated with introducing the euro in the CR. The thesis describes different types of convergence and the relevant indicators with their historical evolution and hypothesis about future trends. The empirical part of the paper analyzes some selected indicators using econometric VAR models and linear and non-linear models of conditional heteroskedasticity. A suitable model for the analyzed data is chosen which gives a comparison of development in the Czech Republic and the EU. Especially time series causality, the existence of cointegration and conditional variance processes are observed. In conclusion there's a summary of all theoretical and modelled outputs with the risk evaluation of joining the monetary union.

The inability to effectively hedge against unfavourable exchange rate movements, using the current forward exchange rate as the only guideline, is a key inhibiting factor of international trade. Market participants use the current forward exchange rate quoted in the market to make decisions regarding future exchange rate changes. However, the current forward exchange rate is not solely determined by the interaction of demand and supply, but is also a mechanistic estimation, which is based on the current spot exchange rate and the carry cost of the transaction. Results of various studies, including this study, demonstrated that the current forward exchange rate differs substantially from the realized future spot exchange rate. This phenomenon is known as the exchange rate puzzle. This study contributes to the dynamics of modelling exchange rate theories by developing an exchange rate model that has the ability to explain the realized future spot exchange rate and the exchange rate puzzle. The exchange rate model is based only on current (time t) economic fundamentals and includes an alternative approach of incorporating the impact of the interaction of two international financial markets into the model. This study derived a unique exchange rate model, which proves that the exchange rate puzzle is a pseudo problem. The pseudo problem is based on the generally excepted fallacy that current non–stationary, level time series data cannot be used to model exchange rate theories, because of the incorrect assumption that all the available econometric methods yield statistically insignificant results due to spurious regressions. Empirical evidence conclusively shows that using non–stationary, level time series data of current economic fundamentals can statistically significantly explain the realized future spot exchange rate and, therefore, that the exchange rate puzzle can be solved. This model will give market participants in the foreign exchange market a better indication of expected future exchange rates, which will considerably reduce the dependence on the mechanistically derived forward points. The newly derived exchange rate model will also have an influence on the demand and supply of forward exchange, resulting in forward points that are a more accurate prediction of the realized future exchange rate. / Thesis (Ph.D. (Risk management))--North-West University, Potchefstroom Campus, 2011.

The inability to effectively hedge against unfavourable exchange rate movements, using the current forward exchange rate as the only guideline, is a key inhibiting factor of international trade. Market participants use the current forward exchange rate quoted in the market to make decisions regarding future exchange rate changes. However, the current forward exchange rate is not solely determined by the interaction of demand and supply, but is also a mechanistic estimation, which is based on the current spot exchange rate and the carry cost of the transaction. Results of various studies, including this study, demonstrated that the current forward exchange rate differs substantially from the realized future spot exchange rate. This phenomenon is known as the exchange rate puzzle. This study contributes to the dynamics of modelling exchange rate theories by developing an exchange rate model that has the ability to explain the realized future spot exchange rate and the exchange rate puzzle. The exchange rate model is based only on current (time t) economic fundamentals and includes an alternative approach of incorporating the impact of the interaction of two international financial markets into the model. This study derived a unique exchange rate model, which proves that the exchange rate puzzle is a pseudo problem. The pseudo problem is based on the generally excepted fallacy that current non–stationary, level time series data cannot be used to model exchange rate theories, because of the incorrect assumption that all the available econometric methods yield statistically insignificant results due to spurious regressions. Empirical evidence conclusively shows that using non–stationary, level time series data of current economic fundamentals can statistically significantly explain the realized future spot exchange rate and, therefore, that the exchange rate puzzle can be solved. This model will give market participants in the foreign exchange market a better indication of expected future exchange rates, which will considerably reduce the dependence on the mechanistically derived forward points. The newly derived exchange rate model will also have an influence on the demand and supply of forward exchange, resulting in forward points that are a more accurate prediction of the realized future exchange rate. / Thesis (Ph.D. (Risk management))--North-West University, Potchefstroom Campus, 2011.