(MONEY Magazine) – Stand back, the old line goes, and gain perspective. So to gain global perspective -- the prime requisite for a global investor -- one must, of course, stand way back, indeed back far enough to see the world as a whole. From that height, the currents of the world economy, its borrowings and booms, the ceaseless tussle of supply and demand, appear like swirling weather patterns wound across the face of the globe. Look, there on the jade-green cheek of the China Sea, a broad stream of cash -- billions of dollars -- sweeps offshore from Japan and stretches swaglike across Asia and Europe to the eastern shore of America. This must be the $3 billion or more that Japan invests in the United States each month -- right now probably the most carefully watched cash flow in the world. Not only does it help bankroll our $193 billion federal deficit, the yen-stream also has a potent effect upon our interest rates: to attract bond buyers, the Federal Reserve Bank must set its rates alluringly high. But only part of the Japanese cash flow goes up the Potomac. A large tributary splits off and heads toward lower Manhattan, where it is absorbed into the stock and corporate bond markets with booming results. Indeed, from a global perspective, many questions can be answered. Where, for example, does Japan come by its abundance of cash? It's easy to see. The oceans are peppered with vessels carrying Japanese cars and electronics equipment to markets all over the globe, and from each of these markets a telltale ribbon of cash flow winds back to Tokyo. Other patterns emerge. Notice the strong braiding of money currents between the European countries. London, in particular, teems with activity. Most of Latin America is overcast by debt. While theory suggests that the flow of money out of a country should be roughly balanced by the influx, large blocks flow into the Latin capitals from U.S. financial institutions, but we see only spurts and dribbles outward bound. One observation, however, is unmistakable. The intertwining global financial patterns are gaining intricacy and breadth as jumbo jets and computers shrink time and distance. Boundaries are tumbling; the distinction between what is foreign and what is domestic grows blurry. (Am I watching an American television set that is made in Korea? Or is it a Korean television with an American brand name?) Not since Colonial times has how much we earn, what we can buy and how fast our savings grow been so determined by forces outside the U.S. economy. Even the Communist bloc is feeling tremors of global capitalism. In March the Soviet Union announced its first bankruptcy. A Leningrad construction trust -- the nearest thing to a private company -- was shut down because of persistent financial losses. Then Raisa Gorbachev, the Soviet leader's wife, was accused of using an American Express Gold Card. China last month opened its fifth bond market, where citizens can invest their savings in industrial collectives. And American investors, in every form ranging from Exxon to egg- roll entrepreneurs, are hoping that the hard-line Asian colossus will continue to soften up to the blandishments of the profit motive. But the typical American overseas investor never applies for a passport. Last year, Americans had $45 billion invested abroad, compared with only $1 billion in 1979. In Minneapolis, for example, whose citizens are described by local financial columnist Tony Carideo as ''drive-by investors who like to touch the building before investing,'' financial professionals report a recent surge in international investing. On the West Coast, where California, Washington and Oregon sit prominently on that polyglot, multinational economic unit known as the Pacific Rim, global investing has been a way of life for a decade. The Rim, says Jim Miscoll, an executive vice president at Bank of America, ''represents a fundamental historic shift in economic power. Los Angeles is the major city, and Korea, Singapore and both Chinas have emerged as key players.'' At the same time as Americans are betting their money in foreign markets, foreign investors -- notably the Japanese -- are tanking up on U.S. stocks and real estate. Manhattan corporate landmarks such as the Exxon building, ABC headquarters and the Tiffany building were sold to Japanese investors in the past year. Nomura Securities, the Japanese equivalent of a Merrill Lynch or a Shearson/American Express, has doubled its staff on Wall Street. Okay, a few months later Shearson sets up offices in Tokyo. Fine. Ten months later Nippon Life, Japan's largest insurance company, agrees to buy 13% of Shearson. It should be no surprise that American investors have been joyously singing We Are the World. Until very recently, most sallies into the international markets have encountered little else but investment-enhancing updrafts. The capitalization -- the cumulative stock value -- of the companies listed on 14 of the largest exchanges has grown from $2.2 trillion dollars to nearly $6 trillion since 1980. Markets everywhere have boomed in celebration of inflation's dormancy. Last year, while Standard & Poor's 500 index enjoyed a 14.6% boost in share value, other markets, notably those in Italy, Korea and Spain, rang up uproarious breakouts of 50% or better measured in local currencies. ''Frankly, in this kind of situation, you have to be cleverer to lose money,'' says Richard W. Gula, an international portfolio manager with Batterymarch Financial Management in Boston. But in recent weeks, the outlook has changed. The stock markets in Germany and Hong Kong have turned down. The dollar, in a series of plunges against the yen and other foreign currencies, has threatened to succumb to the free-fall scenario sketched out by so many columnists and professors. And the threat of more protectionist legislation, like President Reagan's recently imposed tariff on some Japanese products, has free-marketeers tiptoeing toward the exits. Global investing is now more than ever a matter of shrewd analysis and hard work. What should you know before you venture forth? First, be alert to the technical differences among the world's markets. A hidden regulation or unforeseen tax may spring up and poke you in the eye. Norway, for example, withholds a 25% tax on all dividends. In Switzerland, foreigners can buy stocks only at a premium above their cost to Swiss citizens. Also remember that many foreign markets allow unregulated short sales. U.S exchanges, in contrast, require that all short orders be executed on an uptick and thus cushion sudden nose-dives. Buying a foreign stock as an American Depositary Receipt, which gives title to a part of a block of shares held by a U.S. bank, eliminates some -- but not all -- of these risks. New ADRs, in particular, pose a problem: foreign investors often get wind of the fact that a local stock is going to be packaged as an ADR and bid up the price in advance. Advises Richard Murray, a senior vice president at S.G. Warburg & Co., a mammoth multitional investment concern: ''Small investors are wise to buy whole markets instead of individual foreign stocks -- and this can usually be done only through a mutual fund.'' In addition to known hazards, there are unknown ones. Hybridized financial creations (interest-rate swaps, arbitrage tunnels, option commitments) zoom about in the global atmosphere unhampered by regulation and largely invisible to small investors -- until the moment of impact. Last spring, investors lost a total of $500 million in the 30-year Treasury bond market because international marketmakers in another country happened to be using that bond for a hedging instrument. When they unwound their positions, prices plunged. ''It's an off-balance-sheet dimension. Small investors can get creamed,'' says Charles Lucas, a vice president at the Federal Reserve Bank of New York. ''Hell, even investment bankers get creamed.'' Where can a small investor hide? Happily, the same global economy that presents new dangers eliminates others. Traditionally, overseas investments are a way to diversify a portfolio by imbuing it with what is called uncorrelated risk. The idea is to spread your money around geographically so it won't get mauled at the same moment by the same economic bad news. Look at the world as a collection of separate but interrelated economic units. Push one down here, and over there another pops up. Or so the theory goes. But diversification through distance is becoming a less effective gambit. What has always been a world dotted with localized economies is increasingly becoming a single economic entity which, soufflelike, could rise or collapse at a stroke. Karin Lissakers, adjunct professor at the School of International Affairs at Columbia University, sees the electronic interlocking of stock exchanges and multinational investment firms as a cause for worry. ''Today's world financial markets are a daisy chain of transactions -- only as strong as its weakest link. A small failure in Singapore can have disastrous repercussions.'' Not surprisingly, Francois de St. Phalle, a director at Shearson Lehman Bros. who was involved in the Nippon Life deal, is more sanguine. Far from being a threat, globalization, in his opinion, is an economic boon. He cites several debt-conversion programs masterminded by Shearson that could only have been devised and executed by a multinational institution of its size and influence. Under these programs, U.S. banks in effect forgive the notes of debt-burdened nations in exchange for equity shares in local industries, thus circumventing default. ''Essentially, we accomplish the same thing with these countries that a legal bankruptcy would require, but we do it quietly and in the end add more lubrication to the system,'' says de St. Phalle. Greased or ungreased, any transaction across national boundaries faces a basic risk: currency fluctuation. Say, for example, you use U.S. dollars to buy a share of stock on the Paris Bourse when the dollar is valued at 10 francs. If the dollar value changes to five francs, when you cash out your shares and convert back to dollars any profit will be doubled, any losses cut in half. If, however, the dollar moves the other way and is worth 20 francs by the time you sold, you would then halve your profits or double your losses. Two basic factors affect a currency's value -- one natural, the other artificial. First comes the worth placed upon it by the rest of the world. People will trade other currencies for that of a nation blessed with political stability, military strength and sound financial institutions -- thus causing its value to rise. The second factor is the artificial manipulation of a currency's value by a nation's central bank. A strong currency makes imports cheap and thus quells inflation. So to boost their currency, a country's central bankers will buy it in the world market using the bank's stores of the specific foreign currencies they want to depreciate against their own. Of the two factors, the latter is the weak force. The question right now is whether the tumbling U.S. dollar will land on its feet or its nose. The bloody-nose scenario, according to Stephen Marris, senior fellow at the Institute for International Economics in Washington, D.C., would occur if our foreign creditors decide to eschew dollar debt (the value in yen of all those T-bonds bought by the Japanese goes down with each drop of the dollar). To finance the deficit, the U.S. Government would then have to shoulder its way into the financial markets and scoop up investment capital by issuing more bonds at increasingly higher rates. Next stop: recession. Even if recession is years away and you never buy a share of foreign stock, currency fluctuations are bound to jerk you around a bit. With the dollar's fall, Americans can expect to pay more for imported goods. On the other hand, our exports may pick up some sheen, improving corporate profits and creating jobs. John Lanese, whose small family-owned New Jersey company, Genoa Cherries, has supplied the maraschino cherries for mixed drinks all over the U.S., has recently drawn a bead on the Singapore sling. ''We're hoping to export more than $100,000 worth of cherries to Singapore by the end of the year,'' he says, ''and a weaker dollar is going to help.''