On July $1,$ mortgage banker JKW entered into a forward contract with an insurance company. The contract calls for delivery of $$5$ million worth $5$ percent, $30-$year home mortgages at par value on September $1.$ To protect against interest rate risk, JKW buys an adequate number of interest rate futures contracts on July $1.$ How will an increase in interest rates affect JKW$?$

Multiple choice question.

JKW will gain in the cash market and lose in the futures markets.

JKW will lose in both markets.

JKW will lose in the cash market and gain in the futures markets.

JKW will gain in both the markets.