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You just need to decide on whatever you are comfortable with. Our dd doesn't speak much yet, but we refer to her bgrandmother (the only bgrandparent we have contact with) as "Grandma S." It doesn't bother me, but it did bother me that the bfather wanted to be called "Daddy S." We call my Mom "Nana," So it's a little different for me -- "Grandma" is not a title I'm too attached to. You sound quite fond of her and she sounds like she would be a good "Grandma" to your child.
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