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Yes, Aden, the blue thing is a capacitor. One possible purpose might be to keep the points of that relay from arcing so much and destroying themselves by soaking up voltage surges upon point opening and releasing stored voltage on point closing.
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Was looking at one of these blue "DUBILIER Type SV 1microFarad 150V DC WKG" things again. I assume from the design that the hoop get earthed and the radio power source goes to the female spade and back out to the radio. What'd u reckon?
I have never seen a capacitor like that wired into a radio power circuit. I don't know what purpose it would serve there.
Usually those components are included to prevent arcing of points in relays as mentioned earlier, but my understand of automotive electronics is rudimentary at best.
As my radio was never connected to either power or speakers I can't help you with this blue capacitor, except that, Yes, logic would dictate the Ring Connection is grounded/earthed and the spade goes to a "hot" peg somewhere.
(';')