Final answer:
The small Nordic archipelago north of Scotland, whose name is Old Norse for 'the sheep islands,' is the Faroe Islands (option 2).
Step-by-step explanation:
The small Nordic archipelago located north of Scotland, whose name is Old Norse for 'the sheep islands,' is the Faroe Islands (option 2).
The Faroe Islands is an autonomous territory of Denmark, similar to Greenland. It is located in the North Atlantic Ocean, between Scotland and Iceland. The name 'Faroe' in Old Norse translates to 'sheep islands,' which reflects the islands' rugged terrain and the importance of sheep farming in the region.