Explanation
This is the best answer because it empowers the Developers to take ownership of their own process and find a solution that works for them. The Scrum Master can facilitate the discussion and help the Developers understand the value and importance of the Daily Scrum, but not impose or dictate any specific action or rule.
The Scrum Master can also support the Developers in conducting an experiment and evaluating the results, if they decide to do so.
References:
Scrum Guide 2020, page 13: "The Scrum Master serves the Scrum Team in several ways, including coaching the team members in self-management and cross-functionality." Professional Scrum Master II Course, page 14: "The Daily Scrum is a key opportunity for inspection and adaptation at the team level. It helps the team to synchronize their work, identify impediments, and collaborate on solutions." Professional Scrum Master II Course, page 21: "The Scrum Master can help the team to resolve conflicts by facilitating dialogue, listening actively, asking powerful questions, and supporting collaborative decision making."

Explanation
The Daily Scrum is a 15-minute event for the Developers of the Scrum Team to inspect progress toward the Sprint Goal and adapt the Sprint Backlog as necessary, adjusting the upcoming planned work. The Daily Scrum is not a status meeting, but a way for the Developers to collaborate and self-organize around the most important work for the next 24 hours. The Daily Scrum also provides an opportunity for the Developers to identify and communicate any impediments that are hindering their progress, and request help from the Scrum Master or other team members to resolve them.
References:
What is a Daily Scrum?| Scrum.org
What Is the Daily Scrum?| A Guide to the Daily Event - Scrum Alliance

Explanation
B: Ask the Developers and the Product Owner if removing regression testing from the Definition of Done allows the team to produce useful and valuable Increments at the end of every Sprint. This is a good way to challenge the decision and make them think about the consequences of lowering the quality standards. The Scrum Master can help them understand the importance of delivering a potentially releasable product increment that meets the expectations of the stakeholders and customers.
C: Ask the Developers and the Product Owner what problem they are going to solve by altering the Definition of Done during the Sprint to remove regression testing. Will this raise transparency or improve quality? This is a good way to explore the root cause of the issue and find out why they are not able to complete regression testing for all of the selected Product Backlog items in the Sprint. The Scrum Master can help them identify and remove any impediments or inefficiencies that prevent them from achieving their Sprint Goal.
References:
Scrum Guide 2020, page 9: "The Definition of Done is a formal description of the state of the Increment when it meets the quality measures required for the product." Scrum Guide 2020, page 13: "The Scrum Master serves the Scrum Team in several ways, including coaching the team members in self-management and cross-functionality." Professional Scrum Master II Course, page 12: "The Definition of Done is a crucial aspect of transparency. If it is not clear when work is done, then stakeholders may make wrong assumptions about the state of the software."

Explanation
One of the ways to do this is by facilitating the Scrum events, such as the Sprint Review, where the Scrum Team and the stakeholders inspect the product Increment and adapt the Product Backlog2. In this situation, where there is a conflict among the stakeholders about the budget and the funding, your two best options are:
Encourage the stakeholders to focus on delivering the highest value items for the next Sprint.This option aligns with the purpose of the Sprint Review, which is to collaborate on what was done in the Sprint and what to do next2.By encouraging the stakeholders to focus on delivering value, you are helping them prioritize the most important features or functionalities that can maximize the return on investment and reduce risk3. This can also help them align their expectations and goals, and create a shared understanding of the product vision.
Ask for a short break for people to calm down and be objective.This option aligns with your role as a facilitator, who helps the participants have constructive and respectful conversations4. By asking for a short break, you are giving them a chance to cool off and regain their composure. This can also help them be more objective and rational, and avoid emotional reactions that can escalate the conflict or damage the relationship.
The other options are not advisable because:
It is the Product Owner's meeting, so do nothing.This option is incorrect because it contradicts your accountability as a Scrum Master.The Sprint Review is not only the Product Owner's meeting, but a collaborative event that involves the whole Scrum Team and the stakeholders2.As a Scrum Master, you have a responsibility to facilitate this event and ensure that it is productive and valuable1. Doing nothing would mean neglecting your duty and allowing the conflict to persist or worsen.
Defend the budget, asking the stakeholders to support the funding of the work.This option is incorrect because it goes beyond your scope as a Scrum Master.The budget and the funding are not your primary concerns, but rather the value and quality of the product that you deliver1. Defending the budget would mean taking sides in the conflict, which can compromise your neutrality and credibility as a facilitator.
It can also create more tension and resentment among the stakeholders, who may feel that you are not listening to their perspectives or interests.
Argue that the Scrum Team needs to be kept busy while the funding is confirmed.This option is incorrect because it contradicts the principle of empiricism, which is the foundation of Scrum5.Empiricism means that you make decisions based on what is known, rather than what is assumed or predicted5. Arguing that the Scrum Team needs to be kept busy while the funding is confirmed would mean ignoring or denying the reality of the situation, which can lead to waste or inefficiency. It can also undermine the trust and collaborationbetween the Scrum Team and the stakeholders, who may feel that you are not transparent or accountable.
References:1: https://www.scrum.org/resources/what-is-a-scrum-master2:
https://www.scrum.org/resources/what-is-a-sprint-review3:
https://www.scrum.org/resources/blog/value-driven-development4:
https://www.scrum.org/resources/blog/facilitation-scrum-masters-superpower5:
https://www.scrum.org/resources/what-is-empiricism-and-why-is-it-important-to-scrum

Explanation
Short Explanation: Scrum is a framework for delivering value to customers and stakeholders in an iterative and incremental way. Scrum does not prescribe how project budgeting and financial forecasting should be performed, but it does provide some principles and practices that can help with this process.
One of these principles is that each Sprint should produce a potentially releasable product Increment that delivers value and meets the Definition of Done.This means that several Sprints may be funded as a single release, with the result of each Sprint being releasable product12. This allows the Product Owner to decide when to release the product based on the feedback from the customers and stakeholders, and the market conditions.
Another principle is that Scrum promotes transparency, inspection, and adaptation.This means that the budgeting and forecasting process should be revisited as frequently as each Sprint to ensure value is being delivered for the investment spent13. This allows the Scrum Team to inspect the outcomes of the delivered Sprint Increments, compare them with the expected benefits and costs, and adapt the product backlog and the release plan accordingly.
Scrum does not align with traditional accounting practices that require fixed scope, cost, and time. However, this does not mean that Scrum Teams do not need a budgeting process or that they only need to cover the run cost (time and materials) of the Scrum Teams.Scrum Teams still need to estimate the size and value of the product backlog items, forecast the delivery date and cost of the product or release, and track the actual spending and revenue of the product or release43. The difference is that these estimates and forecasts are based on empirical data from previous Sprints, rather than on upfrontassumptions or guesses. They are also subject to change as new information emerges or new requirements arise.
References:
Scrum Guide 2020, section "The Sprint", "The Increment", "Empiricism".
Tips for Effective Agile Budgeting and Forecasting | Toptal, section "Establish Context and Set Expectations", "Budget for Value".
Project forecasts and budgets | Microsoft Learn, section "Project forecasting".
Planning and Budgeting in Scrum Projects - PMHut, section "Budgeting in Scrum Projects".