Final answer:
Cash equivalents are short-term, highly liquid investments, and the statement is true when considering the correct maturity period of three months. They are an essential part of cash management because of their quick convertibility to cash and low risk.
Step-by-step explanation:
The answer is true: Cash equivalents are indeed short-term, highly liquid investments that are typically purchased within three months, not one year, of maturity. By definition, cash equivalents are ready to be converted into cash and are subject to an insignificant risk of changes in value. In terms of liquidity, they can be quickly used - like cash - to buy goods or services, which makes them an essential part of a company's cash management strategy. Speaking of liquidity, cash is the most liquid asset as it can be immediately used to transact for goods and services. The liquidity of other financial assets, like those in saving accounts, decreases as they might require some additional steps to be converted into cash. Cash equivalents, on the other hand, are investments that come close to cash in terms of liquidity due to their short maturity period and high liquidity, making them nearly as accessible as cash itself.