What qualifies as a 'cash equivalent' according to IAS 7?

Cash equivalents are defined by IAS 7 as short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. This definition highlights two key characteristics: first, the investments must be highly liquid, meaning they can easily be converted into cash; second, they must carry an insignificant risk of value fluctuation, ensuring that their value remains stable when converting to cash.

Choosing the option that describes short-term, highly liquid investments with insignificant risk aligns perfectly with this definition. These characteristics allow businesses to manage cash flow effectively and maintain liquidity for immediate needs.

In contrast, other options do not fit the criteria for cash equivalents. For instance, short-term, high-risk investments would not qualify due to their increased risk of value fluctuation. Long-term investment properties are inherently not liquid, as they cannot be rapidly converted to cash without potential loss of value. Lastly, bonds that pay interest may not meet the liquidity requirement, as they can take time to sell and their value may fluctuate based on interest rates. Thus, option C accurately represents what qualifies as cash equivalents under IAS 7.