The world grows a little smaller each day. A Japanese investor, for instance, soon will be able to open his daily newspaper and check the price of his stock in Marriott Corp. and in Potomac Electric Power Co.

The two Washington companies are expected to begin trading on the Tokyo Stock Exchange at the end of September. In time, each company could have a sizable number of stockholders in Japan. But that is only the beginning of the story of why the two companies want their shares traded in Tokyo.

The fact is that Marriott and Pepco are both large users of capital -- Marriott to build hotels, Pepco to build power transmission and distribution facilities. Marriott, for instance, anticipates raising $1 billion a year for many years, said William J. Shaw, senior vice president for finance.

And Pepco, which is planning to spend $1.3 billion on construction in the next five years, will need several hundred million dollars to help fund its program, said James S. Culp, head of investor relations at Pepco. The utility also may want to raise similar amounts of money for the Potomac Capital Investment Corp., its nonutility investment operation.

Given those needs and the huge amounts of investment capital available in Japan, it is no surprise that Marriott and Pepco are interested in making new friends in Tokyo. "We're always looking for new sources of funds and looking for the lowest possible cost. Japan is a good source of funds," said Shaw.

Additionally, Marriott hopes to encourage Japanese investors to put money into its hotels. Marriott does not yet have a hotel in Japan, but it hopes to build one. Shaw believes that if the Japanese get to know Marriott better, it will be easier to attract investors.

Typically, when Marriott builds a hotel, it sells off its equity to investors but continues to manage the hotel.

Marriott already has done business with Japanese banks, said Shaw, noting that in one recent deal, the cost of borrowing money from a Japanese bank was from one-quarter to three-eighths of a percent cheaper than it would have been at a domestic bank.

And when Marriott went to Europe to do a $375 million refinancing of its hotel in New York's Times Square, half of the bonds were bought by Japanese investors, Shaw said.

The listing on the Tokyo exchange, officials of both companies said, is an essential step toward establishing contacts with Japanese investment institutions. Relationships cultivated over a long period of time play an important role in the Japanese business style.

For Marriott and Pepco, the process began earlier this year when they interviewed several leading Japanese brokerage houses to select sponsors in Japan. The Japanese firms compete vigorously to win U.S. listings.

Marriott selected Daiwa Securities America, Pepco picked Yamaichi International (America). Afterward, officials of both companies went to Japan to do dog-and-pony shows about their companies for Japanese investors. At the moment, there are 36 U.S. companies listed in Tokyo and dozens more trying to get on board.

Marriott and Pepco each will start off with at least 1,000 shareholders in Japan. That is one of the requirements for being listed on the Tokyo exchange and one of the chores handled by the sponsoring firms.

If and when Marriott and Pepco decide to raise capital, they will be under no obligation to give the business to their sponsors, it was said. Even so, the Japanese brokerage houses may feel their knowledge of the U.S. firms could help them in making their bids.

Japanese investors, by all accounts, are deeply interested in high quality, well-known stocks, which may help account for the continuing run-up in Wall Street's blue chips.

That search for quality could easily include stocks such as Marriott, already a $5 billion-a-year international company, and Pepco, one of the five utilities in the United States whose bonds carry a AAA rating.

To Japanese investors, U.S. stocks look cheap and provide returns that compare favorably with Japanese investments.

The Tokyo stock market trades at 70 times earnings compared with 20 times for the U.S. market. The earning yield is 1.4 percent for the Japanese market compared with 5 percent for the United States, Forbes magazine reports.

The contrast with bonds is dramatic. Long-term Japanese bonds yield about 3 percent while U.S. Treasury bonds yield about 8.5 percent.

Japanese who own $100 billion in U.S. government securities are making a major effort to diversify their holdings.

Qualifying for a listing on the Tokyo exchange, Culp noted, is no small undertaking. Pepco's application resembles the prospectus the company might prepare for a stock offering in this country. Once it is approved by the exchange, it must be approved by the Ministry of Finance.

Shaw and Culp said it would cost each company about $200,000 in legal and other fees to apply for the Tokyo listing and then about $50,000 a year to maintain the listing.

Shaw and Culp both think it is worth it. Given the shrinking size of the world, "We have to play in the global market," said Culp. Shaw agreed. "It's just natural you'd want to be working with the Japanese," he said.

River Corp. of Richmond was formed 18 years ago when a marginal $4 million to $5 million-a-year specialty paper operation was bought from Ethyl Corp. Since then, the company has grown into a $4.5 billion-a-year giant in the U.S. paper industry.

As befits a giant, James River strode across the Atlantic last week to buy 50 percent of France's Kaysersberg S.A. for $243 million in a two-year staged purchase. Kaysersberg is a subsidiary of Beghin-Say S.A., the leading French producer of sanitary paper.

The price James River paid for its acquisition "looks expensive ... but what they are really buying is entry to the European market," said analyst Michael L. Mead of Scott & Stringfellow in Richmond. "They are evolving into a worldwide paper company."

Mead, who was enthusiastic about James River before last week's merger, said he remains impressed with the company's potential for growth.

James River shares, he noted, were up to $44 last year but backed off when profits softened. Earnings rebounded to $2.03 a share, up 17.3 percent, for fiscal 1987. Mead expects earnings of $2.60 a share for 1988 and $3.05 a share for 1989.

At a current price of $33.75, the stock is selling at 12.9 times Mead's 1988 earnings estimate and 11 times his 1989 estimate.

"We believe that the company can record long-term earnings growth of 15 to 18 percent a share and that the stock can sell at 16 times our $3.05 fiscal 1989 estimate or a gain of roughly 50 percent ... within the next 18 months," Mead said.

The risk factors? First, "An economic recession would affect certain cyclical businesses of James River and could negatively impact our earnings projections." And second, "We anticipate the first fiscal quarter {July} will show a decline in per share earnings due to margin pressure from pulp price increases and a higher tax rate."

In other words, things may get a little bit worse before they get a lot better.

is nothing that will boost the price of a lagging stock faster than the possibility of a buyout. Until recently, the shares of Farm Fresh Inc., a Norfolk grocery chain, were down about 20 percent for the year as profits lagged. Then, two weeks ago, Farm Fresh got an inquiry from an unidentified investment banking firm about a leveraged buyout and the stock moved from $11.63 to $14.25.

Farm Fresh officials rejected the LBO proposal and said the company was not for sale but then said they had hired Kidder, Peabody & Co. to advise them on what to do if they got other offers. Eliot H. Benson, research director at Ferris & Co., figures the story isn't over yet. "I consider Farm Fresh to be in play," he said. Farm Fresh closed Friday at $14.13 a share