The Faroe Islands, lying in the Atlantic Ocean between Scotland and Iceland, are often referred to as the "Island of Sheep." This nickname is derived from the fact that sheep farming is a significant part of the island`s agriculture and economy. The Faroe Islands have a long history of sheep rearing, and sheep farming continues to be an essential industry on the islands.

Option 2, "Island of Goats," is not the correct answer because goats are not a prominent feature of the Faroe Islands. While there may be some goats on the islands, sheep farms are more widespread and important.

Option 3, "Island of Cows," is not the correct answer either. The Faroe Islands are not particularly known for cow farming, and cattle rearing is not a major part of their agricultural practices.

Option 4, "Island of Buffaloes," is also not the correct answer. The Faroe Islands do not have a substantial population of buffaloes and are not associated with buffalo farming.

In summary, the nickname "Island of Sheep" accurately characterizes the Faroe Islands due to their historical reliance on and prominence of sheep farming.