A 9-month American option allows an Italian investor to purchase 1 million USD at the rate of 0.85 euros per USD. The current spot FX rate is 0.90 euros/US, the FX rate volatility is 15% p.a., the risk-free rate in the US is 1% p.a. and in Europe it is 2.5% p.a.

a) Use a three-period binomial model to assess the total premium paid by the investor (round to 4 decimal places)

b) What position does a financial intermediary writing the option need to take in FX to delta-hedge its position?