This folk song is called Nykur, wich is an icelandic version of the Kelpie, a mythical creature wich is a shape shifter, lives near water and appears in the fog. It lures it's victim in form of a beautiful horse. If the victim tries to ride the horse, it runs straight into the water, where the human drowns and is eaten by the Nykur. Some people say that beautiful music can be heard when it appears. There are many versions of this creature in different countries.
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This is a song for my mum!