Concept:
For
\[
z=x+iy,
\]
we have
\[
z+i = x+i(y+1), \qquad z-i = x+i(y-1)
\]
So the modulus equation becomes a relation between distances.
ip
Step 1: Take modulus on numerator and denominator.
\[
\left|\frac{z+i}{z-i}\right|=\sqrt{3}
\quad \Rightarrow \quad
|z+i|=\sqrt{3}\,|z-i|
\]
Now,
\[
|z+i|=\sqrt{x^2+(y+1)^2}
\]
and
\[
|z-i|=\sqrt{x^2+(y-1)^2}
\]
So,
\[
\sqrt{x^2+(y+1)^2}=\sqrt{3}\sqrt{x^2+(y-1)^2}
\]
ip
Step 2: Square both sides.
\[
x^2+(y+1)^2 = 3\left(x^2+(y-1)^2\right)
\]
\[
x^2+y^2+2y+1 = 3x^2+3y^2-6y+3
\]
\[
2x^2+2y^2-8y+2=0
\]
\[
x^2+y^2-4y+1=0
\]
ip
Step 3: Convert into standard circle form.
\[
x^2+y^2-4y+1=0
\]
\[
x^2+(y^2-4y+4)=3
\]
\[
x^2+(y-2)^2=3
\]
So the circle has centre
\[
(0,2)
\]
and radius
\[
\sqrt{3}
\]
ip
Hence, the correct answer is:
\[
\boxed{(B)\ \text{circle with centre }(0,2)\text{ and radius }\sqrt{3}}
\]