The correct option is D both l and h decrease
As the block moves up with the fall of coin, l will decrease. Similarly, h will also decrease, as when the coin is in the water it will displace the water by the amount of its volume. In the first case it was displacing the water only due to its weight.
Because the coin is denser than the wood, the water displaced by the coin is less than the water displaced by the weight of the coin when it was on top of the wood. So the overall height of the water ( h ) will also get lowered.