B3. Imagine the world has three countries: country A, B and C. They all have their own currencies. CountryA and B both have a flexible regime while country C has pegged its currency against country B. a) Using a demand and supply analysis, what would you expect to happen to the nominal exchange rate between country A and B if country A make some technological innovations and attracted investors from country B? b) There has been some bad economic news about country C and foreign investors are taking their money out of the country. What does country C need to do if it wants to defend the pegged rate? c) What happens to its nominal exchange rate if country C fails to defend the pegged rate in part (b)? How might this lead to future recovery in country C's GDP