"There is a village by the river."
Because そばに specifies that the village is not in the river. It serves the same purpose as "by" in the english sentence.
You can. Since mura is the subject change が to は and don't forget あります. So you end up with 村は川のそばにあります。
can i say "kawa no soba niwa mura ga arimasu", just using niwa instead if just ni?
I didn't know the word or term for "by" so I hovered over the English word, and it didn't give me "mura". It gave me "no soba ni", "no chikaku ni" and "made ni" but not the only one I needed! BOO!