Yes, installing Monterey will update your Mac's firmware to the latest beta version that comes with that iteration of macOS. That includes installing it to an external drive, so there is no way around it. It is possible to downgrade to a previous firmware version, but it is an involved process that requires specifics steps to follow. For details, take a look at this
Mr. Macintosh article on the subject. It requires two Macs to perform the downgrade.
Honestly, in my opinion, unless you absolutely need to test Monterey, I don't think it is worth the hassle, particularly since the final release date is only a few months away. What you request is possible, but a pain to deal with. Plus, as always, keep in mind that this is beta software and firmware and therefore should not be used on a production machine that you depend upon as your daily driver. While Apple does its best to make sure that their beta releases are stable and unlikely to cause serious problems, there is no guarantee that the process will be flawless for all Mac users.