What happens with funds whose underlying is in a different currency if there is hyper-inflation?

Question

Let's suppose that a british investor invests in a mutual fund whose underlying is in american dollars, but which is bought in pounds sterling. This means that the fund's managers convert the pounds to dollars to buy, and the opposite to sell.

But let's suppose there is an hyper-inflation in the UK, say, the same magnitude as in Germany after the WWI, therefore the pound would be almost 0 worth.

What would happen in that scenario with the UK investor if he wants to sell? Would the fund need to sell and convert the US dollars to an exorbitant amount of UK pounds? Would it be possible for the investor to receive US dollars instead?

Answer 1

A mutual fund is a company which buys stocks.

a mutual fund whose underlying is in american dollars

Do you mean the stocks which the fund buys, are US Stocks, that is, on the Nasdaq and AMEX?

For example let's say the stocks are Apple and Ford.

What would happen in that scenario with the UK investor if he wants to sell

Nothing exciting.

1. The fund would sell some Apple and Ford

2. The fund would get some USD for that (say, $1500 USD)

3. If there is a button "get my money in pounds" the computers would just trade the $1500 for pounds, let's say, 800 trillion pounds, and the person would get the 800 trillion pounds.

You ask

Would it be possible for the investor to receive US dollars instead?

Sure, why not? It just depends on what features the fund offers.

Some funds that do this have a button that says "Choose which currency you want us to wire you". No big deal.

• I think you may be mis-thinking what would happen in a "pound hyperinflation". In your hypothetical, nothing interesting at all happens. The person owns a few shares of Apple and Ford, that's all. If you sell those, you get USD. You can then exchange the USD for whatever.