strategy for creating a local prosperity and inclusion using broadband and information technology to attract leading - edge businesses, stimulate job creation, build skills, generate economic growth, and improve the delivery of government services. european commission. 2007. report from the commission - convergence report 2007 on malta, com 258 final, p. 7. generate more value. the ongoing improvement in the quality of the infrastructure and other facilities available to investors has induced many foreign investors to locate, or expand existing operations, in malta and thus take advantage of market access and cost - saving opportunities created by malta ’ s status, first as an eu member state and eventually also as a euro area member. this is reflected in the fdi figures when expressed in terms of additions to the capital stock in any one year. since 2003, for example, the ratio of fdi inflows to gross capital formation was on average 83 %, compared to 14 % in the eu25. in manufacturing alone, since the first year of eu membership a total of 127 new projects or expansions with foreign participation have been approved, with an estimated potential value equivalent to 1 % of nominal gdp. 6 the role of the central bank of malta the central bank of malta has been present at every stage of malta ’ s journey to the euro. in the early years it provided the intellectual underpinnings for the project as well as policy advice. for example, it was at the fore in highlighting the long - term benefits for malta ’ s small, open economy of eu membership and of an early adoption of the single currency. it also cautioned, however, that these benefits would only materialise if the existing macroeconomic imbalances were addressed through the implementation of appropriate reforms. the bank also emphasized that these reforms were not only necessary to ensure eligibility for adopting the euro, but also in view of the strong competitive pressures that were emerging in the global economy. on the operational level, the bank ’ s monetary policy remained oriented towards delivering a low and stable level of inflation. the fixed exchange rate regime has indeed been a cornerstone in the country ’ s euro adoption strategy. the policy discipline it promoted had served the country well for over three6 decades as it had come to be recognised that imbalances and structural deficiencies must be addressed through targeted reforms and not through exchange rate adjustment. when, therefore, the time came for the maltese lira to enter erm ii in may 2005, the bank ’ s advice was that the exchange rate should remain fixed throughout

shares should rise relatively more on a rising market and the price of over - valued shares should fall relatively more on a falling market. if the fund managers made a reasonable selection, this meant that the fund would earn money regardless of whether the market rose or fell – in other words the fund was protected, or hedged, against systematic market risk. in other words, the initial idea of hedge funds was to take positions based on the price relationships between securities, while limiting or eliminating market risk. many people still connect the concept of a hedge fund with this strategy, but today this so - called market - neutral strategy is only one of many. moreover, the concept hedge fund is misleading, as many of the funds do not hedge, but take large net positions. a common factor for hedge funds is that they have absolute earnings targets - rather than relating earnings to a benchmark index. they are also subject to much fewer restrictions concerning investment strategies than traditional funds. in addition to buying securities, the hedge funds can go short, that is to say, they can sell securities they do not own. moreover, they can use pledges or derivatives to increase or decrease the risk in their fund management. investments in hedge funds are often tied over a long period of time, which means that the fund can take on fairly illiquid positions. the charges are performance - based, which gives the fund managers a clear incentive to strive for good earnings. it is also common that fund managers themselves invest substantial amounts in their own hedge fund. for a more detailed review of hedge funds, see the article in the riksbank ’ s financial stability report 2006 : 1. however, hedge funds are far from a homogeneous group. one may roughly distinguish three overall investment strategies : market - neutral, directional and event - driven. market - neutral strategies attempt, as i mentioned earlier, to exploit differences in the valuation of various securities, while trying to protect themselves against overall market risk. directional strategies entail finding macroeconomic trends and trying to predict future market movements. event - driven strategies aim to identify securities whose prices will be affected by specific corporate events, such as acquisitions, mergers and bankruptcies. neither of the latter two investment strategies is thus hedged in jones ’ original sense. many hedge funds describe themselves as " multi - strategy ” – they combine different strategies over time to achieve the highest possible earnings. this also applied to amaranth, but the fact was that half of the fund ’ s assets were invested in forward