It's my understanding that the fuse protects the wire should a short develop anywhere in the circuit. The fuse should be sized to protect the smallest wire in the circuit and as close to the power source as possible. There are tables on the internet that shows how much current a given size wire is rated at for a given distance.
1983 Fraser 41
La Conner, WA
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Boating for over 25 years, some of them successfully.