(original question)

To what extent do you agree or disagree with the following statement on a scale of 1 to 5 where 1 = strongly disagree and 5 = strongly agree. Please explain your answer.

"As the Chief Financial Officer, I allocate 5% of our cash reserves each year to speculate on securities in order to help our company grow".

(my answer)

On a scale of 1 to 5 I would have to say a 5 I strongly agree. As the prices of securities fluctuate sometimes negatively due to risk and uncertainty, hence it is wise to allocate or provide cash reserves @ 5% to meet the risk of Securities. This also meets the criteria of provisions in anticipation of risk in securities.

This provision is mainly required in an industry where technology is fast changing like computers, mobile phones etc.

(question that needs to be answered)

If speculation means that the CFO is taking a higher than usual risk in the hope of making a higher than expected return, what kind of situation would the firm have to be in to make that a prudent choice? Thoughts of an example?